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With the introduction of the Personal Savings Allowance and the new Dividend Allowance from 6 April 2016, is there any benefit to having a cash ISA or a stocks and shares ISA?
Triodos Bank does not provide financial advice to savers and investors. We recommend that you seek the help of an Independent Financial Adviser. The following is general information about the changes, from 6 April 2016.
With the Personal Savings Allowance (PSA), if interest rates were to rise then the level of savings you can have before having to pay tax on the interest could drop considerably. For example, at 5% AER a basic rate tax payer would only need £20,000 in non-ISA savings before they’d reach the £1,000 basic rate taxpayer allowance. This amount would drop to £10,000 for a higher rate taxpayer with an allowance of £500. Additional rate taxpayers are not eligible for a PSA but can still save tax free in an ISA. If your income changes, your tax rate may change and so this may lead to a change in your PSA.
Any interest earned on ISAs does not count towards your PSA. If you earn interest in non-ISA savings above your PSA, you’d have to pay tax on this.
Stocks and Shares ISA
Previously, dividends in a stocks and shares ISA were paid with 10% tax already taken off, which couldn’t be reclaimed. Following the introduction of the Dividend Allowance of £5,000 from 6 April 2016, dividends from a stocks and shares ISA will no longer have any tax taken off. They will be completely tax free regardless of their value, whereas dividends paid from non-ISA investments will be taxable over £5,000. There remains no Capital Gains Tax liability from a stocks and shares ISA.
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