A new survey reveals that 70% of savers don’t know about the £1,000 personal savings allowance coming in next year.
The research from Aldermore Bank found that the majority of British savers are also unaware of other significant changes to the savings market set to be introduced in 2016.
Two thirds don’t know about the introduction of ‘flexible Isas’ and six in ten hadn’t heard about the reduction in the Financial Services Compensation Scheme (FSCS) limit that guarantees savers’ deposits.
Personal savings allowance – how it works
Announced in this year’s Budget, the new allowance will let savers earn up to £1,000 in interest without paying tax. The new allowance will come into force in April 2016 and the Treasury estimates that 95% of savers will be taken out of savings tax altogether.
A basic rate tax payer with a total income of up to £42,700 a year will no longer pay any tax on the first £1,000 of any interest earned on their savings. Higher-rate tax payers earning between £42,701 and £150,000 will be eligible for a £500 allowance, while additional-rate tax payers get no allowance at all.
Any interest you earn over the limits will be eligible for income tax.
- Earn £30,000 a year and earn £250 in interest – no tax to pay on the interest as it’s under the £1,000 limit.
- Earn £60,000 a year and earn £1,100 in interest – you’ll pay tax on the remaining £600 you’ve earned in interest above the £500 threshold.
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Under current rules, savers are unable to replace money they have withdrawn from their Isa up to the current limit of £15,240. So, if you have saved the full amount of £15,240 and withdraw £5,000 you can’t replace the money until the new tax year as you’ve used the maximum allowance – despite only having £10,240 left in the account.
In April 2016 that will no longer be the case as savers will be able to replace their cash within the current tax year without losing any of their tax-free entitlement.
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Financial Services Compensation Scheme
The Financial Services Compensation Scheme protects your deposits in case a bank or building society goes bust. Since December 2010, deposits of up to £85,000 per financial institution have been protected.
However, in July the Bank of England’s Prudential Regulation Authority (PRA), which reviews the limit every five years, announced that the limit will be reduced by £10,000 to £75,000 from January 2016, bringing the UK in line with the EU limit of 100,000 euros.
The compensation limit applies to individuals, so if you have a joint account you will be protected up to £150,000 from January.
Find out more: Read our guide to the Financial Services Compensation Scheme
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