Some Individuals could pay no tax on interest received on their 65+ Guaranteed Bond
The new Personal Savings Allowance would mean that for savers with maturing bonds after 5th April 2016 no tax will be payable on the interest as long as their total savings interest remains with the new allowance.
The new personal savings allowance could save tax on interest for a number of those who invested in a 65+ Guaranteed Bond.
The National Savings & Investments’ one year and three year bond was first launched early 2015 and were open to everyone aged 65 and over. The interest rates were set at 2.8% for the one year bond and 4% for the three year bond.
Currently, and up until 5 April 2016, savers will pay tax on interest that the bonds pay at their normal rate. However, for those whose bond matures after 5 April 2016 could receive their interest tax-free provided they remain within the new ‘personal savings allowance’ (PSA) which will be £1,000 for basic rate taxpayers and £500 for higher rate taxpayers.
Essentially a saver who put £10,000 in a one year bond would earn £280 (i.e at 2.8%) in interest which would be taxable if the bond matures before 6 April 2016. If on the other hand the bond matures after 5 April 2016 this interest is likely to be tax-free provided they have no other interest to cause them to exceed their allowance.
The position could be even more favourable for a saver who put £10,000 in a three year bond. They would earn £1,249 (£400 in year one, £416 in year two and £433 in year three) in total in interest. The interest on the three year bond is paid annually which means that even with the maximum amount deposited, a basic rate taxpayer where the interest is paid after 5 April 2016 could receive their interest tax-free provided they have no other interest to cause them to exceed their allowance.
The introduction of the PSA is still however under consultation so there are still some points which remain unanswered. Despite this, it appears that the tax position on interest can vary significantly for two individuals who took out their bonds on different days where maturity is for one before 6 April 2016 and after the 5 April 2016 for the other.
