The Budget has confirmed new measures that will allow 95 per cent of individuals to save completely tax free. In a radical reform to the savings tax system, a new Personal Savings Allowance will be created from April 2016.
This means exempting the first £1,000 of savings income from any tax for basic rate taxpayers and the first £500 for higher rate taxpayers, saving up to £200 off an annual tax bill. This will not apply to additional rate taxpayers.
This will simplify the system for savers. These changes mean that 95 per cent of taxpayers will be able to save completely tax free each year and will have a range of savings accounts to choose from.
Currently 20 per cent Income Tax is automatically deducted from most interest on savings outside ISAs. For those on low incomes, 0 per cent is applied, but only for those who opt out while higher-rate taxpayers are required to notify HMRC so that the remaining 20 per cent can be collected.
The Budget announces that the automatic deduction of 20 per cent Income Tax on non-ISA savings in banks and building societies will cease from April 2016.
Commenting on these plans Isle of Wight’s Lib Dem candidate David Goodall said:-