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67 per cent of British homes missing out on 'no brainer' tax break, says first direct

03 Apr 2006

Savers lose out to the tune of £1.25 billion each year
Households in the South East are twice as likely to have an ISA as those in Northern Ireland

With the end of tax year just days away, research from first direct , the UK's most recommended bank reveals that 67 per cent1 of British households are missing out on their annual ISA allowances. This means that over the last tax year savers could have unnecessarily handed over more than £1.25 billion2 in tax to the Chancellor.

Research from the Department of Work and Pensions (DWP) Family Resources Survey reveals that a massive 79 per cent of households in Northern Ireland have yet to take advantage of this savings tax break, but that the savviest households are those in the South East where an alarming 58 per cent have yet to subscribe. Women were more likely to have an ISA than men.

Ben Dunn, head of marketing at first direct said: "Each year, for the last four consecutive tax years, some 12 million3 people have signed up for their annual ISA allowance. But as Gordon Brown said during his budget speech, the total number of people who have joined up over the last seven years is just 16 million4. This suggests that for the vast majority, it's the same savvy savers who are signing up year after year. With around 30 million savers in the UK, and around 28 million income taxpayers5 too many people are still missing out on one of the easiest tax breaks available."

"We're doing our bit to encourage savvy saving with the latest edition of our e-ISA, which pays a healthy 5 per cent (AER) until 1 September and is one of the best instant access rates available for balances from £1."

The first direct e-ISA offers:

  • a market-leading rate equivalent to 5.00 per cent AER fixed until 1 September 2006, the rate will then revert to the standard ISA rate at the time (currently 4.00 per cent AER)
  • £1 minimum opening balance
  • maximum subscription limit of £3,000 in each tax year
  • no withdrawal or transfer fees
  • easy online application
  • interest calculated daily and paid monthly
  • 24 hour easy access at www.firstdirect.com
  • no need to open a first direct current account.

ENDS

For further information please contact Jo Thorne on 020 7992 1574 or at joannathorne@firstdirect.com

Notes to editors:

  1. Source: DWP: Family Resources Survey
  2. Based on an average savings interest rate of 4.56 per cent (27/3/06). Source: Moneyfacts. With 20.9 million households in the UK and an average of 1.9 adults per household. Where 67 per cent have an ISA. Assuming all adults are lower rate taxpayers, paying 20 per cent on their savings, with an average (mean) savings balance of £5,159. Source: MORI July 2004
  3. Source: HM Revenue and Customs. http://www.hmrc.gov.uk
  4. Source: The 2006 budget statement
  5. Source: HM Revenue and Customs.

first direct
first direct has been the UK's most recommended bank, and has had the most satisfied customers, for the last 13 years consecutively (which is when the research began), according to research from MORI and Research International.

The HSBC Holdings plc
first direct is a division of HSBC Bank plc, and a member of the HSBC Group. HSBC Holdings plc serves over 125 million customers worldwide through some 9,500 offices in 76 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. With assets of US$1,502 billion at 31 December 2005, HSBC is one of the world's largest banking and financial services organisations. HSBC is marketed worldwide as 'the world's local bank'.

Quick guide to ISAs

  • An Individual Savings Account (ISA) is simply a wrapper around a savings product that makes it more tax-efficient. First introduced by the Government in 1999, it allows savers to shelter their money from the taxman as proceeds or interest earned is not liable for income or capital gains tax.
  • There are two types of ISA; either a Maxi or a Mini ISA to which annual subscriptions can be made.
  • With a Maxi ISA savers can invest up to £7,000 per tax year with one company. The full £7,000 can be invested in stocks and shares, or the money can be split between up to £3,000 in a cash component and the remainder in stocks and shares
  • There are two types of Mini ISA:
    • the Mini stocks and shares ISA (with a maximum investment per tax year of £4,000)
    • the Mini cash ISA (with a maximum investment per tax year of £3,000)
  • These can be held with the same or different companies
  • If savers want to invest more than £4,000 in stocks and shares through an ISA, they must open a Maxi ISA. Savers cannot take out a Mini ISA and a Maxi ISA in the same tax year.

Top five fascinating tax facts

Why does the tax year run from 6 April to 5 April? Back in medieval times the king's income was collected by the Exchequer. It was their decision to divide the year into four parts so that sheriffs could travel to deliver the money without having to carry such large amounts. The dates were chosen as the main feasts closest to each of the quarter year days.

The accounting periods then ended on Lady Day (March 25), on Midsummer's Day (June 24), on Michaelmas (Sept 29) and Christmas Day (Dec 25). It was tradition that the books would be balanced on 29 September.

Most of Europe changed from the Julian to the new, more accurate, Gregorian calendar in 1582, but Great Britain continued with the old one system until September 1752. By this time the difference had increased to 11 days because the Romans had miscalculated the length of a year from the solar cycle.

These 11 days were 'caught up' by being removed from the calendar altogether in 1752 when 2 September was followed directly by 14 September. In order not to lose 11 days' tax revenue in that tax year, the tax authorities then decided to tack them on at the end of the Christmas period, changing the collection date to 5 January. 80 years later, in 1842 the beginning of the tax year was moved to Lady Day, 6 April and has not changed since.

When was income tax introduced? Income tax was first introduced in 1799.

How many people pay income tax in the UK? More than 28 million people pay income tax in the UK. That's 54 per cent of people.

What was the highest income tax rate in history? In 1978/79 the top rate of tax on earned income was 83 per cent on income above £24,000 a year.

What are the income tax bands? Income tax has a number of bands:

  • 10 per cent (lower rate)
  • 20 per cent (basic rate for interest)
  • 22 per cent (basic rate)
  • 32.5 per cent (higher rate for UK dividends)
  • 40 per cent (higher rate of other income).

(There are also a number of allowances allowed before the tax bands apply.)

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