ICAS Response: Deduction of income tax from savings income
Response from ICAS to HMRC consultation document on 'Deduction of income tax from savings income: implementation of the Personal Savings Allowance'.
Read ICAS' Response
April 2016 will see big changes to the taxation of savings income. The longstanding Tax Deduction Scheme for Interest (TDSI) is abolished and the new Personal Savings Allowance (PSA) is expected to take 95% of savers out of the tax net.
The Consultation, 'Deduction of income tax from savings income: implementation of the Personal Savings Allowance' primarily concerns savings income which was not covered by TDSI (which primarily affects Bank and Building Society interest).
How are more complex forms of investment income, annual payments and other interest to be treated in the future? The Consultation proposes six options which range from retaining tax deduction at source for non-TDSI income to abolition of all tax deduction at source on savings income.
For those affected, the impact of the proposals could be significant, potentially leading to higher tax bills and more confusion over the tax liability on some savings income.
The changes are most likely to impact those in the higher and lower income range - high net worth individuals with complex investments and those on modest income whose income just exceeds the PSA thresholds.