Jeremy Hunt urged to help savers as tax liabilities increase

Leeds Building Society (LBS) is urging Chancellor Jeremy Hunt to give more help to savers ahead of next week’s Spring Budget, which will be announced on Wednesday, March 15. Richard Fearon, LBS’s CEO is calling for a wider review of tax-free savings products but is saying one “swift and simple” action Mr Hunt could take would be to increase the annual Personal Savings Allowance (PSA).

Since April 2016, the PSA has permitted the first £1,000 of interest on savings in non-ISA accounts to be paid tax-free for those on basic-rate income.

While savings rates remained at historic lows, this meant no tax was due on interest for anyone with £75,000 or less in non-ISA savings.

However, as savings rates have begun to climb, the size of the balance where interest is protected from tax by the PSA has shrunk significantly, which, according to LBS, amounts to around £25,000 at present.

Mr Fearon said: “We understand how difficult the historic low rate environment has been for savers and as rates are on the rise, we’re among the providers to have seen increased inflows as more savers open accounts or add to their existing deposits.

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“When the PSA was created, it benefitted the majority of savers. But as deposit rates rise, more people will become liable to pay tax on their interest and we’d like the Chancellor to raise the allowance, from £1,000 to £3,000 per year.”

Mr Fearon added: “The shrinking benefit of the PSA is a reminder that it’s really important for everyone to make full use of their annual ISA allowance, which currently allows £20,000 per year to be invested tax-free.”

Mr Fearon has already called for urgent reform of current tax-free savings schemes aimed at supporting first-time buyers trying to build up a deposit, describing the Lifetime ISA (LISA) as “not fit for purpose”.

Since April 2016, the PSA has permitted the first £1,000 of interest on savings in non-ISA accounts to be paid tax-free for those on basic-rate income.

While savings rates remained at historic lows, this meant no tax was due on interest for anyone with £75,000 or less in non-ISA savings.

However, as savings rates have begun to climb, the size of the balance where interest is protected from tax by the PSA has shrunk significantly, which, according to LBS, amounts to around £25,000 at present.

Mr Fearon said: “We understand how difficult the historic low rate environment has been for savers and as rates are on the rise, we’re among the providers to have seen increased inflows as more savers open accounts or add to their existing deposits.”

Mr Hunt also announced reforms on dividends and capital gains taxes, slashing both allowances in half for the 2023/24 tax year, with plans to do the same again in 2024, costing investors a significant sum more on unearned income.

Higher rate earners in the 45 percent tax threshold will also pay just over £1,200 more in tax every year after Mr Hunt reduced the threshold from £150,000 to £125,140.

The Spring Budget will be announced on Wednesday, March 15. It normally takes place after Prime Minister’s Questions, which typically finishes at 12.30pm.