When you’re saving, look for extra savings

BLOG9th Apr 2015

Whether we’re young or old, the government is keen to encourage us to save. Interest rates, however, are at a record low, so it’s important to look for every possible advantage or tax break you can find. Here, we explore the potential of the new savings allowance.

Many people know about the NISAs or new ‘super’ ISAs that have been introduced, which should allow people to save up to £15,240 a year tax free in 2015-16. Savings allowances tend to receive rather less coverage in the press and on the TV and radio, however. While it’s true to say that the amounts involved are relatively small, they’re certainly not insignificant. Particularly if you’re someone who is on a modest income.

Up until the end of the 2014-15 tax year, some people with savings income of up to £2,790 would have it taxed at 10% rather than 20%. In a bid to boost savings, the government has pledged a £5,000 gross savings allowance for people with an income of up to £15,600 (the combined total coming from the savings and the personal allowance of £10,600).

To put this in tangible terms, this takes you from a maximum saving of £279 in the last tax year, to a £1,000 in the year head. Certainly not be sniffed at.

If you’re someone with earnings of, say, £12k, all your savings could be taxed at zero per cent, provided the combination of your salary and/or pension and your savings is under the £15,600 limit. On the other hand, someone who earns more than £15,600 can’t benefit at all.

In a scenario in which you have a £14k income, but your savings take you above the threshold to perhaps £18k, it’s possible to claim a tax rebate on the sum between £14,000 and £15,600, but this has to wait until your self-assessment tax return, or form R40. If you fall neatly under the cap, however, you can register to receive interest paid gross.

All in all, it’s important to make the most of the allowances that are available and maximise the amount that’s due to you. If you’re trying to make a retirement income stretch further, for instance, it’s vital to keep up to date with the changes that are taking place. They’re definitely to your advantage.