IA in talks with Treasury over tax break for bonds

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The Investment Association is in talks with the Treasury over extending the tax exemption on savings interest to bonds.

In the March Budget, Chancellor George Osborne announced that no tax will be deducted on the first £1,000 of interest earned on savings from April 2016. Higher rate taxpayers will be given a £500 tax-free allowance.

IA head of tax Jorge Morley-Smith says the trade body is in early stage discussions with the Treasury over whether the policy could be extended to income earned from bonds.

Income earned within an investment bond is currently taxed at 20 per cent.

Morley-Smith says: “We have had preliminary discussions with the Treasury about the tax regime for funds.

“We would like to see the abolition of tax on income from savings extended to the fund environment, so that where a bond fund pays interest it is treated the same way. Not only would that be good news for UK savers, it would also encourage investment from overseas investors.”

AJ Bell investment director Russ Mould adds: “Given the Government has a substantial deficit, I can understand why the Treasury would be happy to encourage investors to buy bonds through additional tax breaks.”

In July, the Government consulted on how the £1,000 tax free allowance will be applied to various types of savings income.

It says the allowance will apply to interest, income from certain purchased life annuities, profits from deeply discounted securities, profits under the accrued income scheme and gains from certain life insurance contracts.

The Government’s response to the consultation is due by the end of the year, with any necessary legislation to be included in the Finance Bill 2016.