Paying Tax on Savings: Here’s Everything You Need to Know

When it comes to paying tax on savings, there is a lot to learn. This is because, with interest rates lower than usual, banks are struggling to offer people the wow factor they need to invest. With this in mind, there are various incentives now in place and many of these come in the form of tax-free savings.

There are several legal ways you can avoid paying tax on savings in Petersfield, Hampshire. To help you, we’ve put together this article highlighting some of the different options currently available. Here it goes:

Premium Bonds

Premium bonds remain of one of the UK’s favourite ways to save because the return rate is comparable to regular savings at 1.40%. Moreover, during the 2018 Budget report, the Chancellor announced several changes that will make premium bonds more accessible to individuals across the country.

As of now, the limit on the number of premium bonds you can purchase is down from £100 (or £50 by standing order) to £25. This goes for regular savings and one-off purchases. Furthermore, the rules on who can buy premium bonds are changing. Currently, only parents and grandparents can buy premium bonds for children under the age of 16. However, this opportunity will now extend to other adults.

While the timescale on this new legislation isn’t clear, we do know that the adult buying the bonds will have to be 16 or above. They will also have to nominate one of the child’s parents,  grandparents, or guardians to supervise the bonds until that child reaches the age of 16.

One of the best parts of buying premium bonds is that despite not being an investment as such, you can get your money back whenever you want. There is no way of you losing your money and you have the opportunity to make tax-free savings through a regular draw. NS&I will also be launching a new premium bond mobile application designed to make saving easier.

Individual Savings Accounts (ISAs)

With ISAs, tax on savings only applies once you reach your maximum yearly limit of £20,000. This means that aside from not paying any taxes on this sum, you can also make tax-free savings via the interest you’ll gain. Additionally, you won’t have to pay any capital gains tax if you decide to close the account.

When it comes to Junior ISA savings, the rules aren’t so different from those of an adult account. For children under the age of 18, the maximum investment limit is £4,260 for 2018/2019. This will go up to £4,368 in 2019/2020. As a parent or grandparent, you don’t have to pay tax on savings if you invest your money into your children or grandchildren’s ISA accounts.

tax on savings family effort

Help-to-Buy ISAs and Equity Loans

Help-to-buy ISAs are great for individuals looking to save money to put down a deposit for their first home. With this type of ISA, you can make tax-free savings of up to £200 a month. You can also make an initial deposit of £1,000 and a maximum deposit of up to £12,000. Additionally, if you meet all the conditions, the government will offer a 25% boost to your savings. This can add up to a maximum of £3,000 per person.

A help-to-buy equity loan works slightly differently. This scheme for new-build properties helps you get on the housing ladder provided you have a 5% deposit. Simply put, the government will pay for up to 20% of your property price. After five years, you will have to pay interest on the loan. This scheme is only open to first-time buyers and there are now lower regional price caps.

Use All the Resources You Have to Better Understand Tax on Savings

If you want to avoid paying more tax on savings in Petersfield than it’s important that you use all the resources available to you. The government now has a comprehensive help-to-buy website that offers information on the various incentives available for first time home buyers.

Moreover, working with a local accountant could help shed some light on some of the opportunities you’re missing out on. At Newnham & Son, we can give you all the information you need to make the most of the tax-free savings available to you. To find out more about our services and how we can help you, contact us today. Our friendly team will be happy to provide you with further information.

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