Budget 2015: Savings tax to be scrapped

Budget box

Post-budget update: Osborne did announce a cut in savings tax - as predicted in the story below - but in the form of a personal savings allowance of £1,000 for basic-rate taxpayers, falling to £500 for higher-rate taxpayers.

Chancellor George Osborne is expected to announce that tax on income from savings will be abolished in today's Budget.

In the coalition government's last Budget before May's election, the Chancellor is also expected to reveal a bigger increase in the personal allowance – the amount people can earn before they start paying income tax – which was already set to rise to £10,600 a year in April.

But it is the change to tax on savings that is expected to be the headline reform, with savers having little to shout about in recent years due to record low interest rates providing little returns.

Currently, basic-rate taxpayers are taxed at 20% on their income from their savings, while higher earners are taxed at 40%. In a bid to encourage people to save, Osborne is expected to scrap the 20% rate, giving millions the chance to access their saving without having to a pay out a slice to HMRC.

He is expected to say: "The critical choice facing the country now is this: do we return to the chaos of the past? Or do we say to the British people, let's work through the plan that is delivering for you?

"Today we make that critical choice: we choose the future. We have a plan that is working – and this is a Budget that works for you."

Other reforms, which the Chancellor is expected to announce today, include the end of the tax return over the next five years in favour of a digital tax account and confirmation that pensioners will be able to sell their annuities for cash.

Osborne will deliver the Budget to the Commons at 12.30pm today. Keep up to date with all developments at Moneywise.co.uk.