Tax rules just too taxing for many British savers

Millions of British couples are paying more tax than they need to on their savings, according to research by Abbey Savings. By analysing savings habits the study discovered over one in ten (11%) couples, or 2.5 million Brits, are unnecessarily paying to much tax on their joint cash savings (not ISAs), by keeping the majority in an account solely in the name of the partner paying the most income tax.

Another 3.8 million (17%) couples could be paying over the odds by holding savings in joint accounts - when one partner is either a lower or nil rate tax payer. If you and your partner have joint finances, you should make sure that most of your cash is held in the name of the lower taxpayer. A higher rate taxpayer will pay 40% income tax on savings where as a basic rate taxpayer will only pay 20%.

When one partner is a higher rate taxpayer and the other a nil taxpayer, on an example of £10,000 attracting 3% p.a. interest, a simple strategy like this could earn you an extra £120 per year in interest.

Reza Attar-Zadeh, Director of Savings & Investments at Abbey said: "Savers need to be savvy when it comes to the tax they pay on their savings. In the tax man's eyes money held within a joint account will be split 50/50 between the two people holding it and the interest taxed accordingly. So, if one partner is actually a lower rate tax payer, or in fact pays no tax at all, it makes sense to hold the bulk of the money solely in their name - reducing the slice of savings eaten up by the tax man.

"At a time where every penny counts there is no point wasting money by unnecessarily paying too much tax on savings. We can all be bamboozled by rules and regulations, and tax is certainly no exception, but a basic knowledge of which tax band you and your partner fall into will mean you can distribute your savings accordingly."

The research found almost half of those polled (47%) do consider not paying tax on savings interest as an important factor when choosing a savings account; the third most important after a good rate of interest and no risk of losing money (83% and 71% respectively). Yet, only 57% of respondents actually have a tax-free Cash ISA, and over half of those asked (54%) admit to not fully understanding what a Cash ISA is - and this includes some people (8%) who actually hold an ISA.

Of those people surveyed who don't think they pay tax on their savings, at least 23% give reasons for not paying tax that aren't valid; for example 11% believe that savings aren't actually taxed and that only income from employment is.

Reza Attar-Zadeh continued "Utilising your tax-free allowance by sheltering your savings in a Cash ISA is an ideal way to make the most of your money. With the deadline for the end of this year approaching fast (5 April) I would urge people to use up their full £3,600 allowance now - and then start building their tax-free savings pot in the new tax year too."