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Published on 3 February 2016

Draft Finance Bill 2016 – Savings allowance, and savings nil rate etc.; deduction of Income Tax at source

LITRG has responded to the HMRC consultation document on draft legislation to introduce a new nil rate of tax for savings income within an individual’s savings allowance and to remove the requirement on deposit-takers and other institutions to deduct income tax from the interest they pay on certain savings and investments.  It will take effect from 6 April 2016.

The LITRG response notes that the combination of the savings allowance and the ending of deduction of income tax at source is likely to simplify the position for many individuals with modest amounts of savings income as it will produce the correct result in the majority of cases.

LITRG raises a number of concerns, however, about the complexity of the mechanism to achieve the simplification. For example, the different levels of savings allowance, dependant on a taxpayer’s marginal rate of tax, are not only confusing, but lead to arbitrary and unfair results. LITRG strongly recommends that the operation of the savings allowance is rethought.

LITRG sees further complexity in the fact that low income, unrepresented taxpayers may have to deal with the starting rate for savings, the savings allowance and the dividend allowance – three different relief mechanisms, which interact with one another and which all operate differently from one another.

We therefore call on HMRC to not only publish clear guidance, including examples and calculators, but also to ensure they have a proactive communications strategy, to draw people’s attention to the changes. It is essential that people know about the changes, understand the savings allowance and how it interacts with the starting rate for savings and the dividend allowance, and also that they are aware of the need to notify HMRC should their savings income exceed their savings allowance.

The consultation is available on GOV.UK:

The LITRG submission can be found


Joanne Walker


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