Q. I am a pensioner with an annual income of about £13,500. Will I be able to benefit from the new 0% starting rate for tax?
A. Yes with any savings income. From 6 April 2015 the 10% rate that currently applies to savings income falling within the starting rate band of £2,880 will be abolished and replaced with a new 0% rate that will apply to the first £5,000 of savings income received by those with a total income below the sum of their personal allowance and the new £5,000 ‘nil rate’ band.
As non-savings income is always taxed before savings income, the new tax-free £5,000 starting rate band can only apply to those earning less than the total of their personal allowance and the 0% starting rate band. For most people this means that total income must be below £15,600 (2015/16). However, the figure may be higher for people born before 6 April 1938 or those entitled to married couple’s allowance or blind person’s allowance. Eligible savers will be able to register with their bank or building society for tax-free savings by completing a form R85.
The eligibility rules for completing a form R85 currently mean that an R85 can only be completed by a saver whose total taxable income for the tax year will be below their tax-free personal allowance. However, from 6 April 2015 these rules are also changing to ensure that any saver who is unlikely to be liable to tax on any of their savings income in the tax year can complete an R85 and register to receive interest without tax deducted – even if they pay tax on other (non-savings) income.
In practice this means that, if a saver’s total taxable income will be below the total of their tax-free personal allowance plus the £5,000 starting rate limit for savings then, from 6 April 2015, they can register to have interest paid on their accounts, without tax deducted, using form R85. A separate form R85 must be sent to each institution with which an account is held.
Note, however, that because form R85 can still only be used where no tax is likely to be payable on savings income, in cases where total income is greater than £15,600 but earned income is below £15,600 (so that some tax is payable on interest), registration for tax-free savings will not be allowed. In these cases it will be necessary for the overpaid tax (i.e. up to the overall £15,600 threshold) to be claimed back from HMRC using form R40 or under self-assessment.
Q. Over the last few years I have built up a reasonable sum in Cash ISAs, which I think are now called NISA’s, but I am now extremely disappointed with the interest rates I am receiving. Is there anything I can do?
A. You are able to transfer NISA’s between providers without losing the tax free status. Therefore you can shop around to see who is offering the best rate and transfer to them. Read the terms carefully though, just to avoid being sucked into a higher rate for a short time and thereafter being tied to that provider on a non competitive interest rate.
Another alternative is that you can transfer to an Investment NISA which can place your money into the stock market, commercial property funds and gilt & fixed interest funds. However, you must have an appetite for placing some of your capital at risk if you wish to have the potential for higher returns. Before doing this I would strongly recommend you take advice from an independent financial adviser who can assess your attitude to risk and capacity for loss.
Q. I have just taken up a new job and I notice that I now have Permanent Health Insurance. I don’t believe I have ever had that before and don’t understand what it is. Does it mean I can go to a private hospital if I am ill?
A. No, I am afraid not. Permanent Health Insurance (PHI) does not provide Private Medical Insurance. PHI policies also known as Income Protection Policies do exactly that, they protect your income, after an initial period, called the deferred period, should you be unable to work due to sickness or injury, these policies pay out a percentage of your income for a certain period of time. This period can be relatively short, a year or two, or right up to state retirement age, depending on the specific terms of the policy. I suggest you contact your HR team at your place of work so they can explain the finer details of the policy, including length of deferred period, percentage of earnings covered and how long the benefit could be paid for.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
0191 217 3340
