2% tax increase in savings question.

whattochoose

Can somebody explain this to me please?….

"Chancellor Rachel Reeves is set to raise income tax on savings interest by two percentage points next April"

At present I receive savings interest that is taxed by a reduction in my personal allowance to take account of the amount of that interest less, of course, once the £1000 savings allowance has been taken into account.

I'm not sure how this 2% element will work and I will be grateful if somebody can enlighten me.

wmb194

https://forums.moneysavingexpert.com/discussion/6665699/2-tax-increase-in-savings-question

The rate for each band will increase by 2%:

"Tax on savings income will increase by 2 percentage points across all bands. The basic rate will rise from 20% to 22%, the higher rate from 40% to 42%, and the additional rate from 45% to 47% from April 2027."

https://www.gov.uk/government/publications/changes-to-tax-rates-for-property-savings-dividend-income/changes-to-tax-rates-for-property-savings-dividend-income#what-are-the-changes-being-made

whattochoose

https://forums.moneysavingexpert.com/discussion/comment/81977226#Comment_81977226

Thank you. But if a calculation for interest received is already reflected in a reduced tax code to take account of untaxed interest, how will the 2% rule be implemented from next year?

InvesterJones

https://forums.moneysavingexpert.com/discussion/comment/81977234#Comment_81977234

Interest received isn't affected. Only the tax you pay on that interest.

masonic

https://forums.moneysavingexpert.com/discussion/comment/81977234#Comment_81977234

If you are asking about the tax code adjustment, HMRC will be aware of the change and factor it into their tax code calculations.

molerat

If you have say £100 interest over your allowance as basic rate tax payer you currently owe the taxman £20. To collect that tax your code is reduced by 10 points so £100 more will be taxed, £100 x 20% = £20. Next year that £100 interest will attract £22 tax. As a basic rate tax payer your code will be reduced by 11 points so £110 more will be taxed, £110 x 20% = £22.

whattochoose

Thank you for replies which clarify things.

I'm over 65 so will at least continue to benefit from the £20000 ISA allowance.

LHW99

https://forums.moneysavingexpert.com/discussion/comment/81977310#Comment_81977310

For clarity that's the £20k Cash ISA allowance. The amount allowed for ISAs isn't being reduced, only the maximum cash amount for under 65s