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When the 10% band is only available for 'unearned income'?
Milarky
Posts: 6,356 Forumite
in Cutting tax
Does anyone know how this will be put into effect for anyone who:
a) Having an earned income greater than the personal allowance of £5335, and
b) Having some savings on which they would pay 20% basic rate tax, if
c) they are only required 10% tax on a slice of unearned income?
The 10% band is staying, as I understand it, for purposes of c) only but nearly everyone who works has some savings and so would be paying 20% on all unearned income - the first 2300 or so if which is only taxable at 10%
Does this imply a near-universal end-of-year rebate scheme, with 25 million or so claims for the 10% difference, or is there something in the pipework to allow the first slice of ordinary savings (up to about £35,000) just to be taxed at 10% in the first place?
a) Having an earned income greater than the personal allowance of £5335, and
b) Having some savings on which they would pay 20% basic rate tax, if
c) they are only required 10% tax on a slice of unearned income?
The 10% band is staying, as I understand it, for purposes of c) only but nearly everyone who works has some savings and so would be paying 20% on all unearned income - the first 2300 or so if which is only taxable at 10%
Does this imply a near-universal end-of-year rebate scheme, with 25 million or so claims for the 10% difference, or is there something in the pipework to allow the first slice of ordinary savings (up to about £35,000) just to be taxed at 10% in the first place?
.....under construction.... COVID is a [discontinued] scam
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Comments
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I rather suspect they're relying on the ignorance and/or inertia of 24.9 million to save them the work of all those tax refunds. I don't see how the banks can do it as they won't know how many other accounts you have and what their balances are, unless the govt set the witholding tax at 10% and expect declarations for savings earnings above the 10% threshold - as they do for HR taxpayers now.
You've just made me realise though that whilst we've more than £35k betwixt us in non-ISA cash savings we don't have double that amount so all our cash savings will only be taxed at 10% from 2008.
Nice one Gordon, now I never thought I'd be saying that!!0 -
I don't think we will really know how the tax bands etc. will work in practice until the Budget. It might work like this:-
Currently 2007/08:SR BR HR Earnings etc. 10 22 40 Interest 10 20 40 Dividends 10 10 32.5
Proposed 2008/09:SR BR HR Earnings etc. 20 20 40 Interest 10 20 40 Dividends 10 10 32.5
i.e. Your starting rate band is used up first by earnings etc. and therefore none will be left in most cases when interest income is considered next.I am an Accountant. You should note that this site doesn't check my status as an Accountant.All posts on here are for information and discussion purposes only and should not be seen as professional advice.0 -
Drat - seems logical! :mad:i.e. Your starting rate band is used up first by earnings etc. and therefore none will be left in most cases when interest income is considered next.
Lucky I hadn't uncorked the Dom Perignon then!
Now what was I saying about Gordon, ah that's it rhymes with banker!!
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That's not so as I see it. You are taxed on the 'source' of the income. So the 10% liability is just that. Your idea would see 'interest' added to earnings - as though it were from earnings and therefore 'ineligible' to be taxed according to its true source.i.e. Your starting rate band is used up first by earnings etc. and therefore none will be left in most cases when interest income is considered next.
One way this could be operated (as I see it) is to offer a third option against the current two of either non registration or registration for interest to be paid gross (R85)
1) Income < 5435 : get ALL interest paid gross (as now)
2) 5435 < Income < (5435 + 2320) : get ALL interest taxed at 10%
This will still result in overpayment at 10% against the 0% allowance but that is better than 20% overpayment now
3) Income from earnings or pension > 5435 AND
Income from savings alone < 2320 : get ALL interest taxed at 10%
This would probably account for 90% of the working population and 80% of the non working population
4) Income from earnings or pension > 5435 AND
Income from savings alone > 2320 : get ALL interest taxed at 20%
Yes, people could cheat of course but they do now anyway. Anyone with a huge amount of '10%' taxed interest is going to get picked up from the returns to the Revenue
Since the govt relies on banks and building societies doing a certain amount to save them work now it does make sense for them simply to offer customers a self-declaration basis to get he 10% (and, politically, it would be much harder to remove the 10% band at a later date because nearly everyone would lose out.).....under construction.... COVID is a [discontinued] scam0 -
Income from savings is classed as top slice income. This means that tax is deducted on other sources of income first. Then whatever band the savings income falls in to after that will be the rate at which the savings are taxed. So to take advantage of the 10% rate you need to have earnings of less than £5435 + the width of the starting rate band (currently £2,230).
Eg (where Personal Allowance is £5,435, starting rate band is £2,000)
Earnings £10,000 (taxed @ 20% less personal allowance)
Savings Interest £1,000 (taxed @ 20%)
or
Earnings £6,435 (taxed at 20% less personal allowance)
Savings Interest £2,000 (£1,000 taxed @ 10%, remainder @20%)0 -
Well I sincerely hope you're right BUT using your logic wouldn't we already be entitled to the 10% rate if interest was treated separately from earnings? You've used your 10% rate for earnings - OK - but if taxed on the source then you have another 10% for savings interest under £2K?That's not so as I see it. You are taxed on the 'source' of the income. So the 10% liability is just that. Your idea would see 'interest' added to earnings - as though it were from earnings and therefore 'ineligible' to be taxed according to its true source.
EDIT: Just seen isasmurf's post and that's how I understood it too, same with CGT where the taxable gain is added to your other income to determine the rate AFAIK.0 -
I think the Treasury (or whoever was responsible) may have caused this confusion by saying that the starting rate band was to be removed/abolished (I don't know the exact terminology used).
The only way I can see of avoiding all the confusion of this thread's discussion is for the starting rate band to remain, but the rate of tax increased to 20% for earnings etc.
As I said yesterday, tax bands for 2008/09 aren't set until the Budget, so we will have to wait until the Spring to find out exactly how it all works.I am an Accountant. You should note that this site doesn't check my status as an Accountant.All posts on here are for information and discussion purposes only and should not be seen as professional advice.0
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