State pensionersare at risk of being slapped with tax on savings interest as part of a £6billion HMRC raid later this year under the Labour Party government.
HMRC sending tax demand letters to state pensioners with £9,800 in savings
State pensioners are at ” particular risk” of a massive £6bn stealth tax on savings interest. State pensioners are at risk of being slapped with tax on savings interest as part of a £6billion HMRC raid later this year under the Labour Party government.
One in 15 taxpayers across Britain will face taxation on their savings this financial year, according to new data from AJ Bell. “Even though the Bank of England cut interest rates this week, millions of savers will still be hit with a tax bill for their savings interest,” warned Laura Suter, AJ Bell’s director of personal finance.
Basic-rate taxpayers exceed their £1,000 annual tax-free threshold with just £19,600 in savings. Higher-rate taxpayers face even tighter constraints, needing only £9,800 before surpassing their reduced £500 allowance.
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Additional-rate earners receive no personal savings allowance whatsoever, paying 45 per cent tax on all interest earned. Ms Suter said: “Older savers who are nearing retirement are particularly at risk of an unwanted tax bill for their cash savings.
“Many will have built up large cash reserves to spend in retirement – not wanting to take risk with the money by investing it so close to their retirement date.
“Once in retirement many retirees will also have decent cash pots to live off, alongside their other pension income. If these cash piles are outside an ISA wrapper, they could face chunky tax bills for the money.
“On top of that, frozen tax bands mean many more pensioners will be pushed into paying income tax. The rising state pension is taking up a decent chunk of retirees’ personal allowance now, meaning that extra pension income could easily push them into basic-rate tax.
“This means that savings income exceeding £1,000 a year would be taxed at 20%. Those who are earning lots of interest on their savings or who are already near the next tax band could find that the savings interest itself tips them into the next tax bracket.
“What’s more, it will take a long time for these savers to move their money into an ISA. Someone with £100,000 today in cash savings would need until 2030 to get that whole pot, plus future interest, into an ISA wrapper – assuming they haven’t already used their ISA allowance this tax year.
“Retired couples should be savvy about how they organise their finances generally, and specifically their cash savings.
“Moving cash to the partner with the lowest income tax band is a smart way to easily save on tax, if you have one basic-rate taxpayer and one higher-rate payer, for example.
“Equally, making sure both partners are using their tax allowances to the full, such as the personal savings allowance and ISA limits can help to reduce tax bills.”