From the new tax year, the government will abolish the 10% starting rate of tax for savings, replacing it with a new zero percent rate, as announced in last year’s Budget but savers need to bear in mind the possible impact on Gift Aid
The starting rate for savings interest will also be increased to £5,000 from the existing limit of £2,880.
From 6 April, one million savers with an annual income under £15,600 will be able to get their savings interest paid completely tax-free.
An additional 500,000 savers could also get back some of the tax they have paid on their savings interest.
A new online calculator is now available from HMRC to calculate eligibility. When calculating income, taxpayers will need to include any taxable wages, pensions, benefits and savings, as well as any tax-free personal allowance that is transferred or received from a spouse or civil partner. The online calculator is available here http://www.hmrc.gov.uk/tools/r85/r85-2015.htm
Those taxpayers eligible for tax free savings will have to register their account with their bank or building society. The key thing is that people need to contact their bank or building society to register for tax-free savings (either directly or they can complete an R85 form and send it to them).
Those who believe they may be eligible to reclaim tax paid on interest will have to complete form R40 or include the figure on their self assessment tax return.
However, the Low Incomes Tax Reform Group (LITRG) is warning savers who give to charity to watch out for the implications of the changes for any donations they make using Gift Aid. If they are no longer a taxpayer they will no longer be eligible for Gift Aid and could face an unanticipated bill from the taxman if they continue to claim it.
LITRG chairman Anthony Thomas said: ‘There is, though, a possible sting-in-the-tail for savers who make donations under Gift Aid.
‘Savers who make regular donations under Gift Aid, or who have enduring Gift Aid declarations in place would be well-advised to review their position prior to 6 April.
‘If they think they will no longer be a taxpayer in 2015/16, due to the 0% savings rate, they may want to discuss the position with the charity with a view to cancelling their Gift Aid declaration, and reducing their donation so that they are not out of pocket.’
At the same time, the ISA limit will increase to £15,240, making ISAs more flexible by allowing all of that money to be invested in stocks and shares or cash.
People will also be able to transfer Child Trust Funds into Junior ISAs and spouses will be able to inherit their deceased partner’s ISA benefits.
More information on the 0% savings changes, including a savings helpsheet for 2015-16, is available here
The online version of form R85 is available here
The PDF version of form R85 is available here