With interest rates having been so low for the last decade most of us have not had to worry about being taxed on our savings, however this is no longer the case!
The Personal Savings Allowance (PSA) allows savers to earn interest on their savings tax-free up to £1,000p.a. for Basic-rate (20%) taxpayers and up to £500 p.a. for higher-rate (40%) taxpayers (HRT). You lose the savings allowance if you earn over £150k (£125,140 from April 2023).
Now that interest rates have risen there are various providers offering interest rates in the 3%p.a. range for instant access, which means that it would only take savings of £33,500 to exceed the £1,000 allowance! With one year fixed rates hovering around the 4% rate this would only need an amount of £25,000 invested! If you are a higher-rate taxpayer these amounts reduce to £16,800 and £12,500 respectively.
Are ISA’s Now The Answer?
With the increase in rates and tax that you are likely to be paying if you have larger amounts of savings you need to be thinking about maximising your ISA allowances. You can save up to £20,000 per person per tax year into an ISA and not pay any tax on your interest.
With interest rates having been so low, Cash ISA’s have fallen out of favour with many of us so, now is the time to reconsider them. Variable ISA rates are around the 2.5%-2.75% range which is lower than non-ISA rates, however if you breech the PSA and pay (20%) tax on a 3% p.a. gross, this is the equivalent of 2.4% net and for HRT payers the net is reduced to 1.8%p.a.
Don’t forget you can divide your ISA allowance between Cash and Equity ISA’s and you can transfer your ISA’s at any time (if you’re not locked in). ISA’s run per tax year to you have until the 5 th April to use your allowance and can start again on the 6 th April. Some ISA’s are ‘flexible’ so allow you to withdraw and replace the money before the end of the tax year. In theory with a ‘flexible’ ISA you could invest £20,000, withdraw it all and replace it again within the same tax year!
Other Tax changes to be aware of …..
Capital Gains tax is reducing from £12,000p.a.to £6,000 p.a. in the 23/24 tax year Dividend allowance is reducing from £2,000 p.a. to £1,000 p.a. – You receive dividends potentially via your own limited company, shares that you own or many non-ISA based investments.
Some tax may be taken at source and others will need you to complete a self-assessment return.
If you need help or advice with your investment planning please contact me, Claire Blake on 07767 308783 or claire@bdfinancial.co.uk or www.blakefinancialplanning.co.uk
Recent Comments