Tories Would Slash UK Tax On Savings

by Robert Lee, Tax-News.com, London

07 January 2009

David Cameron, the leader of the UK's main opposition Conservative party, has unveiled a GBP4.1bn plan to reduce the amount of tax paid by savers and pensioners on their interest income.

The centrepiece of the proposals, announced by Cameron in a speech on Monday, is a plan to abolish income tax on savings for everyone on the basic 20% rate of tax. The plan also calls for an increase in the tax allowance for pensioners up to the age of 75 by GBP2,000 to GBP11,490 (based on allowances for the 2009/10 tax year). The over 75s would also see their tax allowance rise by GBP2,000, to GBP11,640.

In 2009/10, the income threshold at which the 40% tax rate kicks in will rise to GBP37,400, up from GBP34,800 in 2008/9. Therefore, according to the Tories, anyone with savings who has earnings or pension income of less than GBP43,875 will be better off. A pensioner with income of GBP12,000 would save GBP200 a year under the Tories.

While higher-rate taxpayers will continue to pay tax at 40% on their savings under the plan, the proposals would present tax planning opportunities for certain couples where only one spouse pays the 40% rate.

In his speech, Cameron stressed that the plans are part of the Conservative's overall vision of creating a savings culture in the UK, in tandem with fostering thrift, both at the heart of government and within wider society.

“We need to make a really big change: from an economy built on debt to an economy built on saving; from a country and government that has lived beyond its means to one that lives within its means," he said.

Cameron explained that the changes would be paid for by restricting all government departments – except for health, schools, defence and international development – to a 1% real increase in spending in 2009/10.

The current Labour government's mandate does not expire until mid-2010, although some political commentators are speculating that Prime Minister Gordon Brown could call an early election in the Spring of 2009, despite his party remaining several points adrift of the Conservatives in the opinion polls.

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