2016 no tax on first £1000 interest earned

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Spanishsunawaits
Spanishsunawaits Posts: 86 Forumite
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in Savings & investments
I understand that from April 2016 you can earn interest up to £1000 without having to pay tax on it. How will this work? Who tells the banks/building societies etc to not take tax from my gross interest?

How will the tax office know? Who adds up the £1000?

I just don't understand how it will work and there doesn't seem to be much in the press or information about it.

Thanks
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  • cheap-information
    cheap-information Posts: 191 Forumite
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    I would have thought everyone will get the interest tax free from now on and if you earn more than the amount you will have to declare it on your tax return. Much like it is charged at 20% now but you have to pay extra at the end of the year if you should be paying at 40% or claiming back if you overpaid.
  • frugalmacdugal
    frugalmacdugal Posts: 10,077 Forumite
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    Hi,

    here's a couple of links for you, might help.

    Link 1

    Link 2
  • ChiefGrasscutter
    ChiefGrasscutter Posts: 2,112 Forumite
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    Sounds like a lot more people will be doing self assessment forms.

    Alternatively HMG will be setting up back office connections with savings providers to automatically marry up taxpayers details at HMRC with the sum total interest they get from their various sources and then adjust their PAYE code to pay the tax that way.
  • ScarletBea
    ScarletBea Posts: 2,913 Forumite
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    ChiefGrasscutter wrote: »
    Sounds like a lot more people will be doing self assessment forms.

    There's no need for self-assessment, you can just call HMRC and they adjust your PAYE code.
    That's what I've been doing with the extra tax I must pay.
    Being brave is going after your dreams head on
  • ChiefGrasscutter
    ChiefGrasscutter Posts: 2,112 Forumite
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    .......and you think all these (other) people who previously had their tax deducted at source are going to voluntarily /willingly just ring up HMRC and demand that they pay more tax!
    A fair number will simply pocket the difference from getting it tax free and say thank you very much (very quietly).

    In a year or so time they will be on here disgusted/outraged etc at HMRC's back tax demands plus fines for non payment.
    Whereupon they will be reminded that it is the responsibility of the individual to inform HMRC...yayda yayda etc
  • zagfles
    zagfles Posts: 20,330 Forumite
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    edited 10 October 2015 at 10:38AM
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    ScarletBea wrote: »
    There's no need for self-assessment, you can just call HMRC and they adjust your PAYE code.
    That's what I've been doing with the extra tax I must pay.
    Exactly - this isn't a new concept, there are National Savings products which pay gross interest, and people who pay tax have always had to declare them, and usually had their tax code adjusted.

    People who pay higher rate tax have always had to declare all the interest they earn as the bank only takes basic rate tax.

    People who used to be in the 10% band for savings have always had to declare this so they get tax back.

    People who earn over £1000 interest a year will be a tiny minority, far smaller than the groups above who've always had to declare their interest income to HMRC.

    In fact less people will have to declare their interest income to HMRC under the new scheme, since 40% taxpayers with less than £500 interest won't need to declare. There'll be far more of them than basic rate taxpayers earning over £1000 interest.
  • steve65e
    steve65e Posts: 154 Forumite
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    Does anyone know what will happen for people like me whose income is way below the threshold but get more than £1000 in savings interest?

    Will I have to pay tax on it even though I'm not a taxpayer?
  • frugalmacdugal
    frugalmacdugal Posts: 10,077 Forumite
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    Hi,

    why not just accept deductions just now, then do a SA return and hopefully get a decent rebate.
  • Froglet
    Froglet Posts: 2,796 Forumite
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    Steve I am in the same category as you.I have always filled in a form,R 85 I think,to declare myself a non taxpayer.I wonder if we will still be able to do this as well.I certainly won't be earning over £1000 in interest,not at today's rates ! So I hope we will still have the option.
  • Archi_Bald
    Archi_Bald Posts: 9,681 Forumite
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    steve65e wrote: »
    Does anyone know what will happen for people like me whose income is way below the threshold but get more than £1000 in savings interest?

    Will I have to pay tax on it even though I'm not a taxpayer?
    You still have your personal allowance so as along as your interest is less than your PA + £1,000, you do not need to pay tax. Whether you will have to tell HMRC about it is a different matter. There is months and months before the tax for 2016-17 is due, so there is plenty of time for the precise rules to be updated and published.
    Froglet wrote: »
    Steve I am in the same category as you.I have always filled in a form,R 85 I think,to declare myself a non taxpayer.I wonder if we will still be able to do this as well.I certainly won't be earning over £1000 in interest,not at today's rates ! So I hope we will still have the option.
    You won't use an R85 any longer as banks no longer deduct any tax from April 5 2016.

    If your interest is below £1,000, and you are a BR or non tax payer, you won't need to do anything at all.
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