It should be a simple change for the Government as they can allow a deduction for negative interest rate charges against a person’s other earnings, such as their salary.
The present tax rules include a specific provision for losses a person incurs for peer-to-peer investments – it would be hugely unfair if the tax system did not offer a similar concession for individuals who to choose to hold their savings in traditional bank accounts.
Savers have faced woeful returns on their cash savings over the last ten years, with the Bank of England’s base rate set at below 1% since March 2009.
They could face further bad news in the coming months as there are growing concerns that the Bank of England’s base rate could become negative. This would mean that savers are charged for holding cash in their bank accounts.
The news gets worse for individual savers as the present tax rules do not offer any tax deduction or relief for the impact of a negative interest rate.
There is also a question for the Government on what they should do about savings in cash Individual Savings Accounts (ISAs). ISAs are tax exempt and the basic rule is that you are not taxed on any income but cannot claim any relief for losses. It would be logical for that treatment to continue, but the Government would need to look at other ways to protect ISA savings, such as introducing a wider rule for banks and financial institutions which prevent the rate on cash ISAs falling below zero.
The Personal Savings Allowance (£1,000 for a basic rate taxpayer and £500 for a higher rate taxpayer) has largely been redundant since its introduction by George Osborne in April 2016 – the case is stronger than ever to abolish these small allowances to mildly simplify the UK’s personal tax system. At the present base rate of 0.1%, a basic rate taxpayer would need £1 million of cash savings to use their £1,000 Personal Savings Allowance.