Most people will pay no tax on the interest earned on their savings under plans announced by Chancellor George Osborne in his Budget. He called it a savings revolution.
From April 2016, the automatic deduction of basic rate tax on interest will end. So all interest earned on savings will be paid gross, rather than having 20% taken off by the bank or building society.
At the moment, automatic deduction of tax brings in £1.8 billion for the Treasury but around £200 million of this comes from non-taxpayers who should not pay it at all.
Read our round-up of George Osborne's Budget announcements.
New savings tax allowance
In addition, all basic rate taxpayers will be able to earn up to £1000 interest without any tax being due. This new savings tax allowance means the interest on at least £70,000 in an instant access account will be tax-free. Higher rate taxpayers will get a savings allowance of £500.
These two measures mean that 95% of people with money in the bank will save tax. Those who do owe tax on their savings interest will have to pay it either through their tax code or self-assessment.
From this autumn, people with cash ISAs will be able to take money out and put it back in within the same tax year without losing the tax-free status of their money.
Six taxes you can legally avoid.
Help for first-time buyers
First time buyers will be given a subsidy towards their deposit. They can save in a help to buy ISA and when they pay their deposit the Government will add £100 for every £400 they have saved up to a maximum of £3000 on £12,000 savings.
The account can be opened with £1000 and savings can go into it at a maximum of £200 a month. The account is an individual one, so a couple can have one each. The deposit must be used to buy a home of up to £250,000 outside London and £450,000 in the capital.
No increases in personal tax allowance
The widely trailed increase in the personal tax allowance – the level at which income tax begins – will stay at £10,600 from April. Some newspapers were predicting a bigger rise. But those have been put off.
It will rise to £10,800 in 2016/17 and £11,000 in 2018/19. This rises will be the first increase for people born before 6 April 1938 whose allowance has been stuck on £10,660 since 2012. The threshold for higher rate tax will rise as well – to £42,700 in 2016/17 and £43,300 in 2017/18, giving these better off taxpayers a higher saving than basic rate taxpayers.
Review of deeds of variation
There was no mention in the Budget of any change in the level at which Inheritance tax will begin – it is set at £325,000 until April 2018. But there will be a review of what are called deeds of variation, where the heirs to an estate agree among themselves to change the terms of the will. The Chancellor is concerned that they may be used for tax avoidance.
The £1 coin will be slightly thinner and lighter than the present coin and very similar in size and appearance to the old 3d piece which older readers will remember. The question we don’t know – will it fit in a shopping trolley!
Who are the winners and losers in the Budget? Read our guide.