The Office of Tax Simplification (OTS) has opened its first broad review of the taxation of savings and investment income, ‘Savings Income: routes to simplification.’
The review will consider cash and stocks and shares investments, excluding investments in other assets such as property, and identify areas which may be simplified in relation to:
- Interest on savings
- Dividend income
- ISAs
- Pension income
- Life insurance bond withdrawals
- Unit and investment trusts, Open Ended Investment Companies and unregulated funds.
The review paper states that 95% of people pay no tax on Savings income yet it is felt that there is sufficient complexity and confusion amongst taxpayers for a review to be necessary.
The OTS recommends that further work is undertaken to consider the following options:
- Streamlining the interaction of income tax rates and allowances by:
- Specifying the order of deduction for allowances.
- Making the Personal Savings Allowance (PSA) and Dividend allowance exemptions instead of a nil rate of tax.
- Combining the starting rate with the PSA.
- Increasing flexibility for ISA’s including changes to the rules on early withdrawals.
- Clarification of the tax position on Lump sum pension withdrawals.
- Considering whether trusts and personal representatives should be entitled to the PSA.
- Reviewing rules on partial redemption of Life insurance bonds.
Links:
Savings income: tax on interest
Dividend tax (subscriber guide)
External:
Savings Income: routes to simplification
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