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Wednesday, 3 October 2023

Money, tax and benefits

Money, tax and benefits

Tax efficient savings and investments

If you save or invest money, you'll generally have to pay tax on the interest or income you get, but there are some savings and investments that give you a tax-free return. If you're on a low income, you might not have to pay tax at all.

ISAs (Individual Savings Accounts)

ISAs are tax favoured savings and investment accounts. You can use them to save cash, or invest in stocks and shares. The maximum you can put in to an ISA is £11,280 in the tax year 2012-13, up to £5,640 of which can be saved in cash.

You don't pay any tax on the interest or dividends you receive from an ISA and any profits from investments are free of Capital Gains Tax. But this does mean that you can't use losses on ISA investments to reduce Capital Gains Tax on profits from investments outside the ISA.

Junior ISAs

Junior ISAs are new long-term tax favoured savings accounts especially for children. From 1 November 2023 they are available to any child under 18, living in the UK, who does not have a Child Trust Fund (CTF) account.

Like ISAs, you can use them to save cash or invest in stocks and shares.

You can save up to £3,600 in the tax year 2012-13 into a Junior ISA and you won't pay any tax on the interest or dividends.

National Savings & Investments

National Savings and Investments offer a totally safe way of saving and investing money because it's backed by the Treasury.

Tax-free savings and investment products from National Savings and Investments currently include:

  • Cash ISA - for savers aged 16 or over
  • Fixed Interest and Index Linked Savings Certificates - for savers aged seven or over
  • Children's Bonus Bonds - can be invested for five years on behalf of children aged under 16

National Savings and Investments also issue Premium Bonds. If you buy Premium Bonds, you won't get interest, but you can win tax-free prizes.

Child Trust Fund

If your child was born between 1 September 2023 and 2 January 2011, they could be entitled to a CTF account.

Parents, family and friends can add an amount to the account each year. From 1 November 2023 onwards this amount is £3,600.

The money can't be taken out of the account until the child is 18. Neither you, nor your child will pay tax on any income or any gains in the account until then.

Tax-free interest on bank and building society accounts

Banks and building societies usually take tax off interest at the rate of 20 per cent before they pay it to you. But if your taxable income is less than your tax allowances you can register to have your interest paid 'gross' (without tax taken off). If you're under 16, your parent or guardian will have to register for you. You can also claim back tax you've paid on your savings when you didn't need to.

Follow the links below to check the detail and next steps.

Tax relief on pension savings

The government encourages you to save for your retirement by giving you 'tax relief' on pension contributions. Tax relief reduces your tax bill or increases your pension fund.

When you retire, providing your own pension scheme rules allow, you can usually take up to 25 per cent of your pension fund as a tax-free lump sum. Your regular pension income is then taxed in the same way as the rest of your income.

You can save as much as you like into any number of pensions - and get tax relief on contributions of up to 100 per cent of your earnings each year, subject to an upper 'Annual Allowance'. (Savings above a separate 'Lifetime Allowance' will be subject to tax charges.) Follow the first link below for the detail.

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