How the rules relating to savings have changed

AS WELL as getting to grips with poor rates, savers have to wrap their heads around a stream of changes to savings rules: SAFETY NET LIMIT: Cash savings in a bank or building society are guaranteed should a big institution fail. But the limit that is protected fell at the start of this year from £85,000 to £75,000 per person, per firm. PERSONAL SAVINGS ALLOWANCE: Basic-rate taxpayers can earn £1,000 of interest on savings each year without paying any tax. So, for example, a customer with £75,000 in an easy access account paying 1.2 per cent would earn £900 interest in a year and pay no tax on it. Higher-rate taxpayers have a smaller £500 allowance. Earners in the additional-rate tax band have no allowance.

Tax is no longer taken from savings accounts at source and most savers will not need to take any further action. For those who earn more than their allowance, Revenue & Customs will collect the tax owed by changing their tax code, using information supplied by banks and building societies.

People who fill in selfassessment tax returns will be able to declare the income. But the taxman’s calculations should be double checked – don’t assume their figures are accurate. FLEXIBLE ISA: In theory savers can now replace money withdrawn from a tax-friendly Isa without affecting their annual allowance. The limit in one tax year is £15,240. This rises to £20,000 from April next year. But not every provider offers flexibility, and some only offer it on select accounts. INHERITANCE ISA: The spouse of an Isa saver who dies can now increase their Isa allowance by the value of whatever sum was held in the account of the deceased.

So if a husband dies with £30,000 in an Isa, his wife can save that sum, plus the usual £15,240 allowance, in her Isa this tax year – regardless of who her husband has left the money to. This assumes she has an extra £30,000 to put away. An estimated 300,000 Isa savers die each year. But according to Nationwide Building Society, only 8 per cent of accounts held by members who passed away were converted to an inheritance Isa. INNOVATIVE FINANCE ISA: Savers can invest some or all of their Isa allowance in peer-topeer loans – lending directly to individuals and businesses via companies such as Zopa and RateSetter. But few companies are offering them because they have yet to get the required authorisation.