Tax Or No Tax: Two-thirds of Britons do not know savings tax rules March 2014
Research conducted by Nationwide Building Society has highlighted a lack of understanding amongst UK adults about the amount of tax paid on savings. Nearly two thirds (63%) of Britons did not realise that basic rate tax payers pay 20% tax on any interest earned on a standard savings account. In addition, more than a third (37%) were unaware that you pay no tax on the interest earned in an ISA.
One in seven (15%) incorrectly think a basic rate tax payer pays no tax on a standard savings account, while more than one in ten (12%) think a basic rate tax payer actually has to pay tax on savings in a cash ISA. Unlike ordinary savings accounts, the interest earned in an ISA is tax-free.
When it comes to the battle of the sexes, more men (43%) correctly stated a basic rate tax payer pays 20% on savings interest compared with just 32% of women.
Age also makes a difference, with six out of ten (60%) of 18-24 year olds not realising that saving in an ISA means interest is tax-free. Knowledge of the tax rules seemingly grow with age with 72% of the 55s and over correctly knowing you pay no tax on interest earned in an ISA.
Darren Bailey, Head of Savings Pricing at Nationwide Building Society, said: “Many people in the UK appear to have little knowledge on the amount of tax they pay on their savings, which could be costing them a fortune in valuable interest.
“This lack of understanding that interest is tax-free in an ISA but not on a standard savings account could mean many savers are giving more money to the taxman than they need to.
“The last few years haven’t been easy for savers and it’s more important than ever for people to recognise there are ways of making their money work harder. Following a campaign by Nationwide Building Society, the Chancellor not only increased the cash ISA limit in line with stocks and shares ISAs in the recent Budget – double the previous cash ISA limit – he also raised the maximum limit to £15,000.
“Nobody likes paying more tax than they need to, so savers should ensure they fully utilise their ISA allowance before opting for a standard savings account.”