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ANALYSIS
Taxation on savings and investments has
undergone a radical change following the
introduction on 6 April of two new
allowances that exempt some bank interest
and dividends from tax.
The most generous incentive is the
Personal Savings Allowance, which offers a
tax exemption of £1,000 a year for interest
on bank and building society deposits,
government and other bonds, unit and
investment trusts and open-ended
investment companies. The full allowance is
only available to basic rate taxpayers; for
higher rate taxpayers, it is £500. Additional
rate taxpayers, those with a taxable income
of more than £150,000, will lose it
completely. Interest income above the
appropriate allowance will be taxed at the
appropriate marginal rate. Interest paid on
holdings in joint names will be divided
SAVINGS
£1,000 TAX-FREE INTEREST ON BANK SAVINGS
Personal Savings Allowance boost for basic rate taxpayers
equally between the holders, but both
members of a couple will have their own
allowance, so it is sensible to divide deposits
in the most tax-efficient way.
The dividend allowance sounds more
generous as £5,000 can be earned tax-free.
Those who earn more than that, however,
might pay substantially more. Under the
current system, those on the basic rate pay
no tax on dividends, no matter how large.
For higher rate taxpayers the current rate
is 25%, rising to 30.6% for those on the
additional rate. Under the new rules, dividend
receipts above the £5,000 allowance will
be taxed at 7.5% for basic rate taxpayers,
32.5% for higher rate taxpayers and 38.1%
for those on the additional rate.
For advice on the implications of the
changes, please contact your St. James’s
Place Partner.
news
THE INVESTOR
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05
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The first of the government’s measures to
dampen the buy-to-let market takes effect
in April with the imposition of a Stamp Duty
surcharge on all second-home purchases
above £40,000. Anyone who purchases a
buy-to-let property or second home worth
between £40,000 and £125,000 will pay
3% of the property value, rising to 5% for
properties between £125,001 and £250,000,
8% between £250,001 and £925,000, 13%
between £925,001 and £1.5 million and
15% above that level.
The Budget dealt a further blow to buy-to-
let landlords. While Capital Gains Tax rates
are being reduced from 18% to 10% for
basic rate taxpayers, and from 28% to 20%
for those on the higher rate, this will not
apply to residential property. It means those
with rental properties will still face a higher
rate of tax on any profits. Potentially more
significant changes – restricting the amount
of mortgage interest that can be set against
income – will be phased in from April 2017.
BUY TO LET
NEW CHANGES COME INTO FORCE
Stamp Duty surcharge and mortgage interest changes make it a less attractive investment
The fact that these changes are being
introduced gradually, and the long-term
nature of the industry, means it will be some
time before the impact on buy-to-let and
the wider housing market can be assessed.
While some commentators have predicted
that the increased buying costs will force
many landlords out of the market, others
are more sanguine. The Council of Mortgage
Lenders, for example, said that the strong
growth in mortgage lending at the start of
this year may be because some landlords
are buying property ahead of the Stamp
Duty increase, but it added: ‘That scale will
be modest, followed by a similarly modest
fall in activity in the second and possibly
third quarter.’
With mortgage interest rates likely to
remain low for some time, a housing crash
looks unlikely. But the wave of tax changes
on buy-to-let imposed in recent Budgets
has made this market significantly less
attractive to investors.
Any saver aged
between 18 and
39will benefit from
a 25%government
bonus