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2% tax increase in savings question.
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.
Comments
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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
3 -
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?
0 -
Interest received isn't affected. Only the tax you pay on that interest.
2 -
If you are asking about the tax code adjustment, HMRC will be aware of the change and factor it into their tax code calculations.
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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.
Never associate with idiots on their own level, because, being an intelligent man, you'll try to deal with them on their level - and on their level they'll beat you every time.
Being hated by idiots is the price you pay for not being one of them.
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11 -
Thank you for replies which clarify things.
I'm over 65 so will at least continue to benefit from the £20000 ISA allowance.
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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
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Related question - where do savers stand with providers on fixed term/rate products that are due to mature into the next tax year or beyond when at least some of their interest will be taxable at the 2% higher rate? Does the change in tax rate constitute a valid reason for a penalty free early break of the fixed term?
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Doubtful. I opened a fixed term bond today and you can only withdraw early if you have a terminal illness are declared bankrupt or die.
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What if a multi-year fixed rate/term account was opened before the tax hike was announced?
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