Yesterday saw the start of the new tax year along with the start of the new PSA (personal savings allowance). Basically what it means is that all savings interest will now be paid tax free, let me explain.
Prior to yesterday, 6th April 2016, apart from those who saved in an ISA, any interest you earned on savings was taxable. So for a basic rate taxpayer this meant that for every £100 of interest earned they received only £80, or £60 if a higher rate taxpayer. The changes mean that you now get to keep it all. So those who earn £42,700 or less per year can now earn up to £1,000 a year interest on their savings tax free. Those who earn between £42,701 and £150,000 a year can earn £500 interest on savings tax free. The really high earners above 150k will not qualify for a tax free allowance. Once you go over your PSA limit you will just pay tax on the amount that is over, this is paid at your income tax rate.
Although interest from building society or bank accounts, saving accounts and credit union accounts are all covered by the PSA, dividends from funds and shares are not included and will continue to be taxed.
These changes mean that many savers will now be thinking about what or who pays the highest rate of interest rather than the tax situation. And with many banks offering rates of up to 5% on current accounts along with cash incentives to join there could be lots of people rethinking where they place their savings this year.
We would advise anyone to take some professional advice before jumping straight in and moving their savings. The team here at Aspire can answer any questions savers may have so please call us on 01928 735510 or drop us a line here and we will call you back.
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