A recent report has found that 41% of UK savers don’t think they earn enough interest to pay tax on their savings.
With the Personal Savings Allowance (PSA) currently frozen, though, this might not be the case and these savers could be sleepwalking into a hefty tax bill.
Meanwhile, frozen and falling allowances elsewhere – from Inheritance Tax (IHT) thresholds to the Capital Gains Tax (CGT) annual exempt amount – are set to catch more and more Brits napping.
Keep reading for everything you need to know to avoid nasty tax surprises in the second half of 2024.
Advice can help you avoid being among the millions of UK adults sleepwalking into paying tax on savings
The PSA is the amount of interest you can earn on your savings before potentially becoming liable for a tax charge.
It has remained unchanged since it was introduced in 2016 and currently stands at £1,000 for basic-rate taxpayers and £500 for those on the higher rate. Additional-rate taxpayers don’t have an allowance.
MoneyAge confirms that 41% of savers think they don’t earn enough in interest to pay tax on their savings.
Worryingly, 9% of savers with more than £20,000 in non-ISA savings felt that the above statement applied to them. With this level of savings, though, an interest rate of just 5% would see a basic-rate taxpayer exceed their PSA.
The survey also found that:
- 20% of savers don’t know how the PSA works
- 17% have never declared savings interest
- 17% don’t know how much tax they pay on their savings
- 15% don’t know if they need to pay tax.
One way to minimise the risk of exceeding your PSA is to place savings in a tax-efficient wrapper like an ISA. You don’t pay tax on the interest you earn in a Cash ISA and gains you make in a Stocks and Shares ISA are free of both Income Tax and CGT. Your pension, too, is incredibly tax-efficient.
Careful and early estate planning could help you and your loved ones avoid a hefty tax bill on death
MoneyAge also reports that the Treasury’s IHT take is rising. Receipts for April 2024 topped £700 million, around £85 million more than the same month in 2023.
Professional Adviser, meanwhile, confirms that government figures point to a record year in 2023/24, with the overall IHT take hitting £7.5 billion.
Chancellor Rishi Sunak froze the nil-rate and the residence nil-rate band back in 2021, at £350,000 and £150,000, respectively.
As the value of estates and house prices have risen over the last few years, more households are finding themselves liable to IHT.
It’s important to remember that estate planning isn’t something to think about only as you get older. It should form part of your long-term plans from the outset.
Think carefully about the sort of legacy you want to leave and put a will in place. Then communicate your wishes with those affected to ensure transparency and hopefully avoid any disputes after you are gone.
You don’t have to leave a legacy only on death though. You might choose “giving while living” as a tax-efficient way to lower the value of your estate. This reduces a potential tax bill while also meaning you’re still around to see the difference your money makes. Gifts can be made at any time during your lifetime. They’ll usually be taxable if you die within seven years of making the gift but HMRC exemptions do apply.
At Fingerprint Financial Planning we can help you make the most of your exemptions and put a plan in place early, mitigating a potential IHT liability that could cost your loved ones financially and cause stress at a difficult time.
Get in touch
If you have concerns about a potential tax liability, whether on your savings or your estate, speak to us now. Get in touch by emailing hello@fingerprintfp.co.uk or calling 03452 100 100.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate planning, cashflow planning, tax planning, Lasting Powers of Attorney, or will writing.
