Most Brits don't understand tax on savings
Nearly two thirds (63%) of Brits don't realise basic-rate taxpayers pay 20% on any interest earned from standard savings accounts straight to HMRC.
One in seven mistakenly think a basic-rate taxpayer pays no tax on a standard savings account at all, while 12% think they would have to pay tax on cash Isa savings.
In fact, more than a third (37%) didn't realise there's no tax to pay on interest earned in an Isa.
More men than women were aware of savings tax, at 43% compared to 32%. And unsurprisingly, knowledge increases with age. Six out of 10 18-24 year olds didn't know about cash Isa savings being, while 72% of over-55s did.
Lack of understanding
Darren Bailey, at Nationwide Building Society, which put together the numbers, said: "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."
He added: "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."
Up until 5 April 2014, £5,760 can be deposited into a cash Isa, and £11,520 in a stocks and shares Isa.
From 6 April to the end of June those figures rise to £5,940 and £11,880 respectively.
And from 1 July, up to £15,000 can be paid into the single merged account called a ‘new Isa' or Nisa, with savers able to decide how much to hold in cash or invest in stocks and shares.
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.