The Chancellor announced in his budget that he intends to reduce the tax burden for some in relation to their savings income (meaning interest income).  From 6 April 2015 the maximum amount of an eligible individual's savings income that can qualify for the starting rate of taxable savings will be increased to £5,000 from £2,880 and this starting rate will be reduced from 10% to nil.

Who Can Benefit?
 

The proposed changes will increase the number of savers who are not required to pay tax on savings income, such as bank or building society interest.  This can be particularly beneficial for retired people who have modest pensions.  This is because their pension income may be their only non-savings income and is often covered by any personal allowances.  The first £5,000 of savings income is not taxed at all.  This can provide a useful income boost.

In addition where it is expected that the saver's total taxable income will be below the total of the personal allowance, plus the £5,000 starting rate limit, then they will be able to register to receive their interest gross.  This can be achieved by completing the Inland Revenue form R85, which allows the interest to be paid gross, rather than having to first suffer income tax on it and then reclaim. 
 

The Impact
 

This means that for 2015/2016 an individual with the right combination of income up to £15,500 may not be liable to any tax at all.  In addition, if total taxable income exceeds £15,500 but non savings income is less than £15,500, then part of their savings income will not be liable to tax.
 

An example
 

Jane is aged 68 and receives annual pensions of £10,500 and has annual gross savings income of £4,000 (none of which is held in a tax-free ISA).  Her personal allowance for both tax years 2014/2015 and 2015/2016 is £10,500.  This means that there is no tax on her pension income as it is covered by her personal allowance and her savings income will be taxed as follows:
 

To discuss whether this will affect your tax

position, please contact your Financial Adviser here at Firth & Scott Financial Services Ltd.
 

Article written by David Skelton DipPFS, CeMap

I think it's worth reminding everybody that the new Pensioner Bonds are attractive but to be eligible you need to be aged 65 and above.
 

There are two basic versions, a one-year and a three-year bond.  The one-year bond is paying 2.8% and the three-year 4%.
 

However, there are limits as to the maximum that can be invested and these are £10,000 per person per bond and it is not a limitless supply.  Our understanding is that National Savings plan to issue £10bn worth of Pensioners Bonds.  It might sound a lot but I guarantee unless we see a rise in interest rates in the next six months this offer will be heavily over-subscribed.
 

Please remember that they will be taxed just like any other savings account and you can't effect a pensions bond in an ISA format.  They will be available from January 2015 and if you wish to discuss further whether they do fit into your investment portfolio again, please contact your Financial Advisor here at Firth & Scott.    

As pointed out in the April edition of 'Your Money Matters' the maximum allowable contribution to a Junior ISA increased to £4,000 from 1st July 2014.

What's interesting is that 16 year olds can also effect if they wish a Cash ISA, investing as much as £15,000, following the change of rules from 1st July 2014.

Again, pick up the phone and call 0115 8400 333 to have a chat with your Financial Adviser here at Firth & Scott Financial Services Ltd if you require any help and assistance on this matter.

Article written by Steve Hopkins FCII