Tax authority, HMRC, to gather £10.4 billion through savings tax collection
In the financial landscape of the United Kingdom, understanding taxes and savings plays a crucial role for individuals planning for their future. Here's a breakdown of key points to consider for the upcoming 2024/2025 financial year.
HM Revenue and Customs (HMRC) and Tax Relief on Pensions
HMRC, the UK government's tax authority, is responsible for collecting taxes on interest from savings in the UK. Good news for higher and additional-rate taxpayers is that they receive tax relief at a rate of 40% or 45% on any money contributed to their pension. This makes pension contributions one of the most tax-efficient ways to save for retirement.
Income Tax Thresholds and National Tax Burden
Income tax thresholds have been frozen until 2028, contributing to a record-high national tax burden. Additionally, dividend and capital gains tax allowances have been reduced in recent years.
Savings Interest Tax
The UK government expects to collect £10.4 billion in tax on savings interest for the 2024/2025 financial year, marking an increase from £3.9 billion two years ago (2022/2023) and £1.4 billion three years ago (2021/2022).
ISAs and Tax-Free Savings
Any assets held within an Individual Savings Account (ISA) are exempt from income and capital gains tax. Each year, adults can stash up to £20,000 in a tax-efficient wrapper known as an ISA.
Premium Bonds
Premium Bonds, a savings product issued by National Savings & Investments (NS&I), operate a little differently to a regular savings account. Instead of paying interest, they enter you into a monthly prize draw. Premium Bond prizes are tax-free, and the more bonds you hold, the more likely you are to win a prize. These bonds are backed by the UK government, making them one of the safest investments you can get.
Tips for Savings
If you currently hold large cash savings in a regular savings account, you should consider moving it into an ISA. If you have some extra cash and want to avoid tax, topping up your pension could be a wise choice. Laura Suter, director of personal finance at AJ Bell, predicts that the actual tax take for this year could be £14 billion.
Inheritance Tax
Inheritance tax receipts are on track for another record year. If your annual income is less than £12,570, you could be entitled to earn £6,000 in savings interest without paying any tax. Those earning between £12,570 and £17,570 will lose £1 of the starting rate for every pound they earn over the personal allowance.
Interest Rates
Interest rates are currently at a sixteen-year high, with the best easy-access and one-year fixed savings accounts offering rates of around 5%.
In conclusion, understanding the tax implications of savings and investments is essential for anyone looking to plan their financial future. Whether it's contributing to a pension, using an ISA, or considering Premium Bonds, being informed can help you make the most of your money.
