Four tips for making the most of the changes that came into effect on 6 April
The new personal savings allowance (PSA) was introduced on 6 April, meaning that a basic rate taxpayer can earn savings income of £1000 tax-free or £500 if you pay tax at the higher rate. ISA interest and Premium Bond winnings will not count towards the PSA limit and all savings interest will be paid gross with any tax owed taken through your tax code.
The best rates on savings accounts tend to be available if you can commit to putting aside a set amount per month with a regular saver or if you can afford to lock your cash away for a set period in a fixed-rate account. Many accounts will offer introductory bonus rates which are worth taking advantage of but make sure to move on when the deal ends.
Don’t write off the ISA
The new PSA is not the end for ISAs and savers should continue to utilise their ISA allowance in accordance with their financial goals. As well as guaranteeing that interest will stay tax free, ISAs have a number of other differentiating features. For example, spouses can inherit their deceased partner’s ISA free of inheritance tax but the PSA cannot be transferred.
Shop around for competitive rates and make the most of compound interest by opening your ISA as early in the tax year as possible. New for this year is the Innovative Finance ISA, which will allow peer-to-peer lending without having to pay interest on your investments.
The maximum savings limit in an ISA remains at £15,240 (although this will increase to £20,000 in 2017/18) and it is now possible to make cash withdrawals and replace them in the same tax year without affecting annual subscription limits.
Review dividend arrangements
The Government has abolished the 10 per cent tax credit on UK dividends and in its place is a new allowance giving investors up to £5000 worth of dividends tax-free.
Higher rate taxpayers with dividend paying portfolios should assess their existing tax wrapper. It is possible that investing directly in stocks and receiving the dividend income direct, within the new allowance, could be more tax efficient.
For better or for worse
The marriage tax allowance makes it possible for one person in a married couple or civil partnership to transfer a portion of their personal allowance to their spouse. The allowance for 2016/17 is worth £220 and you may be able to claim last year’s allowance of £212 backdated. To qualify, the lower earning spouse needs to be a non-taxpayer and the other must be a basic rate taxpayer.
Anna Evitt is a private wealth manager at Anderson Strathern Asset Management
This article was originally published by The Scotsman on 9 April 2016.
This information is obtained from sources considered to be reliable, but its accuracy and completeness is not guaranteed by Anderson Strathern Asset Management Limited. Neither the information nor any opinions expressed constitute financial advice. Investments can fluctuate in price, value and/or income and may return less than the original amount invested. Past performance is not necessarily a guide to future performance.
Anderson Strathern Asset Mangement is regulated and authorised by the Financial Conduct Authority.