As the end of the current tax year approaches, it is worthwhile making a check to ensure that the various tax-efficient savings opportunities have been utilised wherever possible. The following paragraphs highlight some of the areas where savings may be made.
The maximum annual investment limit for Individual Savings Accounts (SAs) will remain at £20,000 for 2019/20. The limit effectively allows a couple to save £40,000 a year between them and receive interest on the investment tax free. There will also be no capital gains tax to pay when the account is closed.
Junior ISAs are available to UK-resident children under-18 and run on similar lines to ‘adult’ ISAs. The maximum investment limit for 2018/19 is £4,260, rising to £4,368 for 2019/20, which provides adequate scope for parents and grandparents to make tax-free savings investments on behalf of their children/grandchildren.
Help-to-buy ISAs continue to be available to assist first-time buyers save a deposit to purchase their first home. Broadly, up to £200 a month can be saved in the ISA (along with an initial deposit of £1,000, and up to a maximum of £12,000) and, provided certain conditions are met, the government will provide a 25% boost to the savings up to a maximum of £3,000 per person. A couple buying together could therefore save up to £30,000 tax-free towards the purchase of their first home.
With a return rate comparable with regular savings accounts (currently 1.40%), it is not difficult to see why Premium Bonds (PBs) remain one of Britain’s favourite ways to save. In the 2018 Autumn Budget, the Chancellor announced several changes to PBs, which should help make them more accessible for all. Currently the minimum amount of PBs that can be purchased is £100 (or £50 by standing order). The good news is that this limit will be cut to £25 by the end of March 2019. This will apply to both one-off purchases and regular savings.
In addition, the rules on who can purchase PBs are being changed. Currently, only parents and grandparents can buy PBs for children under 16. Although the timescale is yet to be confirmed, it has been announced that in future, it will be permissible for other adults to buy PBs on behalf of children. The person purchasing the bonds for children will have to be over 16, and must nominate one of the child’s parents or guardians to look after the bonds until the child turns 16.
The maximum Premium Bond holding will remain at £50,000.
NS&I has also confirmed that it will be launching a new PB app in the new year, which is designed ‘to make saving easier’.
Although Premium Bonds are not strictly an ‘investment’, they can be encashed at any time with the full amount of invested capital being returned – and in the meantime, any returns by way of ‘winnings’ will be tax-free. The odds on winning a prize in any one month are currently 24,500 to one. There are currently two £1m prizes, five £100,000 prizes and ten £50,000 prizes each month.
Bank and building society accounts
The personal savings allowance (PSA) was introduced with effect from 6 April 2016 for up to £1,000 of a basic rate taxpayer’s savings income and up to £500 of a higher rate taxpayer’s savings income each year. The PSA is not available for additional rate taxpayers. The allowance will be available in addition to the tax-advantages previously available to investors with individual savings accounts.
Broadly, the PSA means every basic-rate taxpayer can earn £1,000 interest without paying tax on it – equivalent to the interest on almost £75,000 in some easy-access savings account. The PSA remains unchanged at £1,000 and £500 respectively for 2018/19 and 2019/20.