The OTS has looked at looks at the taxation of people’s savings income and identifies areas that might be simplified by government. The 
current UK tax regime offers a range of tax reliefs to encourage people to put money aside for their future needs: these work well for most taxpayers, 95% of people pay no tax on savings income, but aspects of the regime are complicated, difficult to understand, and can produce anomalous outcomes.
Most savers don’t have to pay tax on income from their savings until it is more than £1,000 a year and they can also contribute £20,000 a year to their ISAs where the income is not taxed either.
However many taxpayers continue to worry that they will be taxed on their savings income with misunderstandings and confusion remaining. This is the area, and inevitably the complexity, that the OTS considers is now the time to address.
This is the first broad review of its type into the application of the tax system to savings and investment income. It seeks to identify ways to remove some of the real complexities in the system and help taxpayers understand their position.
More than half of UK adults (65%) save some of their income. Most will have no tax to pay as their are many reliefs to encourage people to set aside money for future needs. These reliefs mean that savings taxation works well for most people, but there are significant complexities in some areas and an opportunity to improve the position further.
This report provides a comprehensive picture of the taxation of:
- interest and dividend income
- ISAs
- pension withdrawals
- life insurance bonds
- collective investment wehicles such as unit and investment trusts
The report identifies nine areas where further work would be beneficial, including:
- a review of the various savings rates and allowances, and the interactions between them, to identify options to streamline the income tax calculation
- drawing up a personal tax roadmap to clearly set out the government’s vision for personal taxation, including plans for savings income
- improving guidance on the taxation of savings income, particularly on the treatment of pension lump sums, an area of particular confusion
- simplification of ISAs, including a review of the rules on withdrawals from the Lifetime ISA
The OTS is the independent adviser to government on tax simplification, challenging tax complexity to help all users of the tax system; it does not implement changes – these are a matter for government and for Parliament. The OTS team is led by Chairman Angela Knight CBE and Tax Director Paul Morton and has a small staff drawn from HM Treasury, HM Revenue and Customs and the private sector.
More information van be found on the .Gov website.
