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Higher rate taxpayer numbers on the rise

Archive for April, 2014

Higher rate taxpayer numbers on the rise

Wednesday, April 9th, 2014

The days when Budgets revealed tax allowances and bands for the coming tax year have long since passed.

Tax

 

These days the Autumn Statement normally covers such matters, leaving the Budget for next-tax-year-but-one announcements. Thus the £10,000 personal allowance for 2014/15 was already a fact and the Chancellor’s announcement of a £10,500 allowance for 2015/16 was so widely leaked as to be no real surprise. The starting points for higher rate tax in both years were already known: £41,865 in 2014/15 and £42,285 in 2015/16.

The sub-inflation increases in the higher rate threshold will mean that by 2015/16 there will be 5.3 million higher rate taxpayers, a 2 million increase over 2010/11 according to the Institute for Fiscal Studies (IFS).

Higher rate graph

While shrinking the basic rate band (by £145 for 2014/15 and £80 for 2015/16), Mr Osborne did the opposite with the starting rate band, which only applies to savings income:

  • The band rises by £90 to £2,880 in 2014/15. 
  • In 2015/16 it will undergo a radical change, with the rate cut from 10% to 0% and the size of the band nearly doubled to £5,000.

The 2015/16 revisions is a mix of politics, smoke and mirrors. Ed Balls, the Shadow Chancellor, plans to reinstate a 10% starting band for all income, something his earlier boss (Gordon Brown) abolished, so Mr Osborne took delight in removing the 10% rate from the tax scales before the election. Mr Osborne’s revamp will potentially benefit only 1.5m taxpayers, with half gaining no more than £50 a year. How many actually benefit will depend upon the numbers that bother to reclaim tax deducted at source.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

 

ISA becomes NISA

Friday, April 4th, 2014

Canada dayThe Budget included some radical changes to the ISA rules which will come into force on July 1, 2014. That also happens to be Canada Day which, even given the nationality of the new boss of the Bank of England, is probably irrelevant. We thought it would be worth a good look at the new rules and the transition arrangements between now and then.

Between April 6 and June 30, 2014 each UK resident aged 18 plus can invest a maximum of £11,880 into ISAs. This can either all go into a Stocks & Shares ISA or it can be split between one Cash ISA and one Stocks & Shares ISA (with a maximum of £5,940 into the cash ISA). An eligible investor aged 16 or 17 can invest up to £5,940 into a Cash ISA but nothing to a Stocks & Shares ISA.

Also between the above dates, the ISA transfer rules allow a Cash ISA to be transferred to a Stocks & Shares ISA but you can’t transfer a Stocks & Shares ISA to a Cash ISA. 

From July 1, 2014 this all changes.  From then ISAs become known as NISAs (New Individual Savings Accounts). In a major simplification, the annual subscription limit will be increased to £15,000 and there will no longer be a lower limit on the amount that can be invested into a Cash ISA meaning the full £15,000 could be invested in cash if required. Investors can save any combination of amounts up to £15,000 overall between their Cash and Stocks & Shares ISA.

Those who have already contributed to ISAs between April 6 and June 30 will be able to make additional payments (if their ISA provider allows it) to either their Cash NISA or Stocks & Shares NISA in whatever combination they choose provided that no more than £15,000 is paid to the accounts in total in the 2014/15 tax year. Note that, an investor will still only be able to pay into a maximum of one Cash NISA and one Stocks & Shares NISA in each tax year. Investors aged between 16 or 17 will still only be able to invest in a Cash NISA but, from July 1, 2014, they can invest up to £15,000.

Also from July 1, 2014 investors will be able to transfer in whole or in part between Cash and Stocks & Shares NISA and vice versa.

Comment

The ability to transfer from Stocks & Shares to Cash is intended to give greater choice and flexibility for savers but, in the current climate of low interest rates, individuals should carefully consider the implication of switching fully to cash before doing so.  Remember as well that any transfer from one provider to another must be requested from the old provider by the NISA provider to whom the transfer is being made. Don’t withdraw sums from a NISA in order to deposit it in a new NISA. If you do, any amount that you pay in will count as a new payment against your annual limit.