Savers – who have suffered from chronic rates of interest over the past few years – are one of the groups the Chancellor has sought to benefit from his recent Budget.
As mentioned in my last article, this has been addressed to some extent with the increase, to £15,000, that an individual can invest tax-free in their New ISA, which comes into effect from July 1, 2014.
For people aged 65 or over, the Budget also announced that National Savings and Investments (NS&I) will launch a choice of two fixed-rate, market-leading savings bonds, available from January, 2015.
These products are aimed at providing certainty and a good return for those who have saved all their lives and now rely on their savings for income.
Although the exact details of the bonds are still to be finalised, based on current NS&I projections they would attract rates of 2.8% gross on a one-year bond and 4.0% gross on a three-year bond with an investment limit of £10,000 per product.
These will be taxed in line with all other savings income which has also been revised from April 6, 2015.
For those who have N & I indexed-linked Savings Certificates, it is possible to roll over into new ones ,albeit it with a tiny amount above inflation. But for those worried about inflation, they remain a good tax-free investment.
There have been no new issues for some time.
Currently, where an individual’s income does not exceed their Personal Allowance entitlement plus £2,880, savings income such as bank and building society interest is taxed at 10%.
From April 6, 2015, the savings tax rate will be reduced to nil for these individuals up to a maximum of £5,000. This will enable a greater number of individuals to register to receive interest without deduction of tax at source rather than to seek a repayment of tax from HMRC.
The new nil tax band will offer a further tax-saving opportunity for those grandparents who are liable to tax at higher rates on their savings income by gifting capital to their grandchildren. These grandchildren will then be able to shelter bank and building society interest with their own Personal Allowance and nil tax band.
For the more sophisticated grandparent-investor having offshore investment bonds, it may be possible to assign these to their grandchildren and any gains made on their surrender by the grandchild will be taxed on them and with these gains counting towards the nil tax band.
The Budget also brought surprising and radical changes to the personal pension regime which may also be of particular benefit to those who have struggled to save towards their retirement.
For those aged 60 or over having total pension funds of less than £30,000, they will now be able to withdraw such amounts where previously, the limit was £18,000.
From April, 2015, it is proposed that the requirement to buy an annuity with a pension fund will be scrapped and individuals will be able to withdraw their entire fund to use as they see fit over as few or as many years as they like. The first 25% withdrawn will continue to be a tax-free lump sum with the balance being taxed at their marginal rate.
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