Do you qualify?
It was announced last year that the government would introduce a new Personal Savings Allowance (PSI) to help with their mission of creating a “saving mentality” in the UK. Subsequently, from 6 April 2016, many tax payers, including most doctors and dentists, will be entitled to tax-free savings.
How much is your PSA?
Interest income earned on savings has typically been taxed at source, by the bank or building society.
However, from 6 April 2016, there will be a change in the way the tax is collected, and how much tax you will have to pay.
Depending on the rate of tax you pay, i.e. if you are a basic rate, higher rate or top rate tax payer, depends on your PSA. For all except top-rate tax payers, there will be a tax-free amount that can be earned on savings income before paying any tax. See the table below.
Highest rate of income tax you pay | Personal Savings Allowance |
---|---|
Basic | £1,000 |
Higher | £500 |
Additional | £0 |
This initiative is expected to enable thousands of people to keep more of their savings and further build their nest eggs for their retirement, or for a rainy day.
What classifies as “savings income?
Savings income that is included in the PSA includes:
- interest earned from savings held with banks, building societies, credit unions and NS&I
- interest earned on distributions from authorised unit trusts, plus open-ended investments
- some types of purchased life annuity payments, plus some gains from specific types of life insurance contracts
Minimising the tax payable on savings interest
An ISA continues to be the most tax efficient way to shelter your savings income from tax. Here, savings can be invested to the annual allowance (£15,240 for 16/17) completely free from anything tax related.
ISA’s are particularly important for top rate tax payers whom are not entitled to receive the PSA.
Tax collection under the new system
From 6 April, the banks and building societies will also stop taxing the interest income “at source”. Instead, HMRC will have access to the information needed to correct the tax-code of those employed and for self employed doctors and dentists it will be a case of declaring the savings interest on your self-assessment tax return, as is done currently.
On occasions, some interest earned from unit trusts or open-ended investments may have tax deducted at 20% still, however, it will be possible to claim back the tax through the tax return – speak to a financial adviser or your accountant if you are not sure how to do this.
Dental & Medical Financial Services can provide sound advice on savings and investments and how you can minimise your tax through effective planning.
Tel: 01403 780 770
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