More than half a million savers, the majority of whom are pensioners, should pay more tax, according to the Office of Tax Simplification (OTS), has reported.
The OTS has argued that the 10% tax rate paid on some savings income should be scrapped so that all such income is taxed at 20%, according to the Daily Telegraph.
The 10p rate applies to the first £2,710 of income from savings of low earners and was left in place in 2008 ‘to encourage savers’ after Gordon Brown scrapped the 10p rate of income tax.
However, the OTS found that the 10p rate was little understood and added unnecessary complexity to the tax rules. As a result, it should be abolished, it said.
According to the Telegraph the change would cost 525,000 savers, most of them pensioners, an average of £90 a year, or £5 million in total.
The OTS has proposed that in exchange for this the annual limits in tax-free Individual Savings Accounts should be increased for all savers.