Bond fund taxation simplified for investors

Tax-Taxation-Blocks-700.jpgThe government has changed the tax rules for investors in bond funds, who will now benefit from the Personal Savings Allowance without having to claim tax back.

In the 2015 Budget Chancellor George Osborne announced the Personal Savings Allowance, which takes effect from 6 April 2016. It means basic rate taxpayers will be entitled to a tax-free allowance of £1,000 per year on interest from their savings, while higher-rate taxpayers will be entitled to £500. Additional rate taxpayers will not receive a Personal Savings Allowance.

However bond fund investors – who also qualify for the new allowance – were faced with having to claw back the 20 per cent tax automatically deducted from their income at source.

The Investment Association successfully the Government to remove this requirement, meaning that from April 2017 bond fund managers will no longer collect 20 per cent tax from income payments to investors.

The Investment Association said the move is being introduced “to help bond fund investors enjoy the new Personal Savings Allowance hassle-free, and [to] radically simplify the tax regime for bond funds.”

Jorge Morley-Smith, director of business support and promotion at the Investment Association, says: “From April, basic-rate taxpayers will be exempt from tax on the first £1,000 of interest and receiving distributions without tax deducted means that you will not need to file tax returns simply to claim tax back. It also ensures that UK funds continue to be an attractive and competitive savings vehicle for UK and overseas savers.”