Savings allowance: bond fund investors face ’round trip’ to get their tax back

11th March 2016


Bond savers face going round the houses to claim back tax following the introduction of the savings allowance, says the Investment Association.


Jorge Morley-Smith, director of business support and promotion at Investment Association, has flagged concerns about the new personal savings allowance that will be available from April.


It allows basic-rate taxpayers to earn £1,000 in interest each year before paying tax on their savings, with the total dropping to £500 for higher-rate taxpayers.


While he said the change is ‘clearly fantastic news for savers’ as ISAs and National Savings accounts will no longer be the only way without incurring tax.


‘For those who choose to leave their money in cash in a bank savings account, the new personal savings allowance will apply automatically since interest will e received by savers without any tax being taken off,’ he said.


However, for those saving into bonds, the situation isn’t as simple.


‘Income payments from bond funds qualify for the new allowance, but under the current tax regime, funds must automatically collect 20% of tax on the income they pay out, to hand to the taxman,’ said Morley-Smith.


‘Investors then face putting in claims with the taxman to recoup the 20% income tax and take advantage of the personal savings allowance.’


He said this taxation ‘round trip’ could be ‘rather inconvenient for he UK’s thousands of bond fund investors’.


‘We believe the answer is simple – remove the obligation from bond funds to collect tax from their income distributions to investors,’ he said.


‘By doing this, the taxman would be affording bond fund investors the ability to receive their personal savings allowance hassle-free.’


Morley-Smith added that the change would enable saver ‘to make the choice to invest in a bond fund with ease, rather than simply leaving their money languishing in cash accounts paying paltry levels of interest just to avoid tax complexity’.


By making this change individuals who do not earn enough to pay income tax would also benefit as they have to claim back some or all of the 20% tax paid on bond funds from HMRC.

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