The new Personal Savings Allowance has now been with us for a number of months. Many people may not even be aware of it and for the majority of people, its presence will have only a minor impact, if at all, in that they will receive slightly more savings interest than before. This is because the requirement for banks and building societies to deduct tax at source was also removed on 6th April 2016 and all such interest in now paid gross. From that date, a savings allowance of £1,000 for basic rate taxpayers, or £500 for higher rate taxpayers, was introduced.
Lesley Rance, a tax specialist in our Perth office comments: “Individuals who, to date, have reclaimed the tax suffered on this interest will no longer have to submit a repayment claim to HMRC to have this refunded. Basic and higher rate taxpayers will be able to earn the aforementioned sums tax free and it will only be where these limits are exceeded that the amounts have to be declared to HMRC”.
However, the allowance does not apply to additional rate taxpayers i.e. those whose income is above £150,000 on which they pay tax at 45%. This means they now have a source of untaxed income and they will have an obligation to inform HMRC.
At the moment, formal guidance is a bit thin on the ground but it is fair to assume that, if the individual in question is already within Self Assessment it will simply be a matter of including the interest as normal in the relevant section of the tax return and the tax liability will be calculated in the usual way.
However, for savers who do not submit tax returns, there is a possibility that they may now have to. This is unfortunate seeing as, over the last decade or so, HM Revenue & Customs have worked to reduce the number of taxpayers who annually submit tax returns under Self Assessment, particularly those whose tax affairs were relatively straightforward or where tax could be collected at source, either by direct deduction from interest or through PAYE. The new rules which were supposedly brought in to make matters simpler for many savers may have the opposite effect on wealthier savers. Of course, it is by no means certain that those savers will have to submit a tax return. HMRC might revert to their historic practice of including an adjustment in the individual’s PAYE coding notice so that extra tax is deducted from employment or pension income, to cover the tax due on the interest.
Lesley added: “If you have any concerns as to how the new Personal Savings Allowance might affect you, we would suggest you discuss matters with our tax specialist”.