Brits in the dark about new tax allowances

There is widespread unawareness of current tax thresholds in the UK and changes that will take effect on 05 April, according to new research.

Some 82% do not know the new Cash Isa allowance from April, 84% do not know the personal allowance on income tax from April, and 91% do not know the personal allowance for over 65s on income tax from April, the research from HSBC shows.

There is also a distinct lack of awareness among lower income earners, the very people these allowances benefit the most.

The survey of 2,000 UK adults showed that two thirds, 65%, do not know the current Cash Isa allowance is £5,100 while more than eight in ten, 82%, are unaware that this allowance rises to £5,340 in April.

Almost half, 47%, think it is always compulsory to pay tax on your savings, unaware that if they have not earned more than the annual personal allowance this is not the case. A further 93% are unaware that you are able to claim back tax paid on your savings from HMRC in the same way you would claim income tax if eligible.

Furthermore, 85% did not know what an R85 form is, and this is true of 88% of unemployed people and 80% of retired people, despite this form being most applicable to them to ensure they are not paying unnecessary tax on their savings.

Almost two thirds, 72%, did not know that the current tax free personal allowance on income for those aged under 65 is £6,475 while 84% were not aware that this allowance is rising to £7,475 from April.

This is true of a startling number of people who are earning below the threshold and should not be paying income tax. Almost eight in ten, 79%, of those earning less than £5,000 a year and 70% of those earning less than £10,000 a year did not know the current personal allowance despite being most likely to benefit from it.

A further 86% of those earning less than £5,000 and 91% of those earning less than £10,000 also did not know what this will allowance will change to in April.

From April 06 the income tax personal allowance for those aged under 65 will rise from £6,475 to £7,475 for those earning less than £100,000. The income tax personal allowance for those aged 65 to 74 will rise from £9,490 to £9,940 for those earning less than £24,000, while the income tax personal allowance for those aged 75 and over will rise from £9,640 to £10,090 for those earning less than £24,000.

The higher rate tax band of 40% will be lowered from £37,400 to £35,000, the taxable savings rate will rise from £2,440 to £2,560, the total ISA allowance rises from £10,200 to £10,680 and Cash Isa allowance rises from £5,100 to £5,340.

There is also ignorance of the additional allowances available to those aged over 65. Some 84% did not know that the tax free personal allowance for those aged between 65 and 74 is £9,490 and 93% did not know that for those aged over 75 this is £9,640.

A further 91% did not know that the tax free personal allowance for those aged between 65 and 74 rises to £9,940 from April and 92% did not know that for those aged over 75 this will rise to £10,090.

Among those this is most relevant to, 73% of those aged over 55 did not know the tax free allowance for 65 to 74 year olds and 88% did not know the allowance for over 75s.

‘It is essential that we are aware of the tax thresholds as this could make a big difference to the interest we earn on our savings and the tax we pay on our earnings. This is especially true for those on lower incomes or the older generation who could possibly reduce or escape altogether the tax they are currently paying,’ said Richard Brown, head of savings at HSBC.