From 6th April the new Financial Year, there will be new rules for taxing dividends and payment of interest on bank deposits that will fundamentally change what assets you can hold in different wrappers.
Banks & Building Societies will pay interest gross, rather than after a deduction of 20 per cent income tax.
Under a new Personal Savings allowance (PSA), the first £1,000 of interest will be tax-free for basic rate taxpayers and the first £500 for higher rate taxpayers. Additional rate taxpayers will receive no allowance. Non-taxpayers will no longer need to complete from R85 to receive interest without tax deducted.
Even at an interest rate of 1.5 per cent, basic rate taxpayers will be able to shelter nearly £70,000 in deposit accounts and higher rate taxpayers, £30,000. This effectively creates another ISA-like home for cash savings.
This means that ISA allowances can be left free for other assets. Another change, allowing ISAs to be replenished in the same tax year, also takes effect from April. This enables investors to move cash currently within their ISAs into bank deposits to benefit from the new PSA.
Meanwhile, the first £5,000 of dividend income is received tax-free for both basic rate and higher rate income taxpayers. It has been calculated that up to £135,000 of shares in limited companies or collective funds with yields around 3.7% can be held outside of an ISA or pension without incurring income tax.
This rule change could see investors move equity income assets outside of pension and ISA wrappers to use this new £5,000 allowance, which would leave ISAs free to hold growth-oriented assets and to receive interest and dividend income that cannot be covered by the new PSA and dividend allowances. Using these allowances to their fullest alongside ISAs and pensions should mean the vast majority of UK savers and investors pay no tax on much of their savings and investments.
These changes allow UNIQ Family Wealth to help you make the most of your money by aligning savings and investments with the most appropriate wrapper or allowance. Speak to us if you need help on any of the changes.