Are you making the most of your tax-free allowances? Even better, could you start the year with a £5,000 tax-free bonus? Intrigued? Julia Peach of Bulley Davey Wealth Management explains
From Black Friday through to Christmas and right up to the January pay day, money is always a little shorter at this time of year – and getting those extra pennies where you can is a huge help. With New Year’s resolutions also being made, now is the perfect time to start getting your finances in order and looking at your savings. What would you say if we told you that you or your relatives could be missing out on the opportunity to generate £5,000 of annual income tax-free? Recent changes to tax on interest from savings could make a big difference to pensioners and low to average income earners – particularly those receiving an annual income lower than £16,500.
We spoke to Julia Peach, Independent Financial Adviser at Bulley Davey Wealth Management in Stamford, about the changes and how you could be eligible to receive this £5,000 tax-free interest on your savings: ‘This is a change that came into play within the last couple of years but people still often aren’t aware of the process, what it means and how much they’re eligible for. It’s called the Starting Rate for Savings allowance and potentially enables you to generate a further £5,000 in tax-free savings interest.
‘The cynics among us will look at this and believe it is another government allowance that can’t be achieved due to current low interest rates. However, there are certain UK-regulated investment products that have been around for decades that can help you maximise your allowance. Let’s start with the different types of allowances.’
● Personal Allowance: The Personal Allowance is the amount of income that a person is allowed to receive from such things as employment or their pension before paying tax. This is currently set at £11,500.
● Starting Rate for Savings: The Starting Rate for Savings adds to this and allows you to generate up to £5,000 in tax-free savings interest. This is combined with the Personal Allowance meaning that you can earn up to a capped to a total of £16,500 in tax-free income and savings interest. Therefore, if you earn £13,500 as income, you will only be eligible to receive £3,000 in Starting Rate for Savings.
● Personal Savings Allowance: You may also get up to £1,000 of interest tax-free depending on which Income Tax band you’re in – £1,000 for basic rate earners, £500 for higher rate and £0 for additional rate. ‘In theory this means that you can earn up to £17,500 in tax-free income and savings interest. This could be potentially useful to know if you or your family are pensioners, whose income may be minimal but savings could be more substantial.
‘There are a number of different savings and investment products on the market that can help you to make the most of your wealth and generate tax-free interest for you, such as savings accounts and insurance bonds. Of course, the right option will depend on individual circumstances, so it is always best to discuss these options with wealth management experts, such as Bulley Davey’s independent chartered financial planners, who can outline the options and the potential opportunities and risks.
‘It’s also quite possible that tax has been automatically deducted – so you could file to reclaim it! Wouldn’t that be a great way to start the New Year?’
For more information or advice on all personal or business financial matters, please contact Bulley Davey Wealth Management. Visit www.bulleydaveywm.co.uk or call 01780 723120 or 01775 718850.