Government urged to scrap Personal Savings Allowance

The Personal Savings Allowance, which has only been in place since 6 April 2016, allows exemption from tax for the first £1,000 of interest for a basic rate tax payer and £500 for a higher rate taxpayer. Additional rate taxpayers (those with income over £150,000) are not eligible for the allowance.

Applying the 0.25% rate, a basic rate taxpayer would need £400,000 of savings to fully utilise their £1,000 Personal Savings Allowance. A higher rate taxpayer would need £200,000 of savings.

Recent data shows that the highest paying cash ISA would generate less than £100 of interest per annum on the maximum annual allowance of £15,240. Blick Rothenberg says that with this in mind, "it questions the purpose of the Personal Savings Allowance in the UK’s cluttered tax legislation".

Nimesh Shah, Partner at Blick Rothenberg, said: "I expect it is highly unlikely that someone with £400,000 of savings will be a basic rate taxpayer! In addition, those individuals with sizeable savings are likely to have taken advantage of their ISA allowances over the years, Therefore a person would need such savings outside of their tax-free ISAs to benefit from the Personal Savings Allowance.

"Over the last 5 years, the Government has tinkered with personal allowances and income tax rates and there are a number of unnecessary provisions which should be abolished to simplify the personal tax system. The Personal Savings Allowance is one of several measures that the Government, together with HM Revenue & Customs and the Office of Tax Simplification should look at scrapping.

“Given the historically low interest rates, and with a further rate cut speculated, the Government would be better introducing an exemption from income tax for interest generated on cash savings in UK bank accounts.”