Wednesday 16th May 2007
Individual savings accounts (Isas) may provide significant reductions in the money lost through income tax, the Financial Times (FT) reports.
Figures calculated by Bestinvest reveal that basic rate taxpayers could have saved a total of £3,500 in income tax payments since the introduction of Isas in 1999.
Meanwhile, potential savings reach £6,600 for those who pay higher levels of tax, according to the FT.
Despite the elimination of tax breaks on share-based savings in 2004, the publication states that cash and corporate bond packages could still offer income tax benefits.
A cash Isa charges no tax on interest payments, while a standard savings account is subject to income tax deductions of about 20 per cent, with a further 20 per cent payable by higher-level taxpayers, the FT advises.
This could total about £30 in funds recouped by a basic rate taxpayer on a £3,000 Isa with an interest rate of five per cent, or up to £60 for those in a higher tax band.
And on a corporate bonds Isa with a balance of £7,000, the savings could increase to £70 and £140 respectively.
The incentives offered by Isas could be useful for the 12 per cent of Britons who revealed in a recent Nationwide survey that they use their standard current account as a savings vehicle.
A further ten per cent told the financial services provider that they keep their savings "elsewhere" - with money in jars or under the bed among the locations cited.
But the effective added value of a tax-free savings account could help to provide the extra income desired by the 77 per cent of respondents who expressed an interest in a higher rate of earning in the long-term.
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