New tax year brings changes for savers

The start of the new tax year signals the arrival of a range of changes to taxation for businesses and individuals.

Here’s a summary of the changes relating to personal savings coming into effect in April 2016.

Personal savings allowance

A new allowance of £1,000 will be introduced for income earned on people’s savings.

Basic rate taxpayers with a total income of £43,000 a year are eligible for the savings allowance, meaning they will pay no tax on the first £1,000 of their savings income.

Higher rate taxpayers earning between £43,001 and £150,000 will be eligible for a personal savings allowance of £500.

Money withdrawals from ISA accounts
People with ISA accounts can now withdraw money during the tax year without it counting towards the annual ISA limit.

This comes alongside a new Lifetime ISA announced in Budget 2016. From April 2017 adults under 40 will be able to save up for £4,000 each year while receiving a 25% bonus (£1000) from the government.

The ISA limit will also increase from £15,240 to £20,000 from April 2017.

Commenting on the personal savings allowance in February 2016, Low Incomes Tax Reform Group chairman, Anthony Thomas, said:

“The highly complex operation of the savings allowance must be addressed to improve its clarity and avoid people feeling that they face arbitrary and unjust tax bills.

“People should keep an eye on their level of savings income to ensure they do not stray into a different taxable band.