Tax on savings interest “all or nothing"

rustymetal

My only income this tax year will probably be a deferred £5,225 redundancy payment, which was the personal allowance at the time of redundancy. My interest on savings is going to take me just above the current £6,475 personal allowance. HMRC inform me that this makes me a tax payer and I cannot register any of my bank accounts as non taxable because it is a “all or nothing" rule!

Ironically had I not followed Martin’s advice and gone for fixed rate deals, I could have managed my interest down below the threshold and been better off!

[FONT=&quot]Does anyone know if I can claim back some of my tax on interest retrospectively?[/FONT]

tom188

in short, yes you can. Form R40 from HMRC i believe

rb10

I believe the form you want is called R40, which is available from HMRC. Although you do need to pay tax on the interest initially, most of the tax will be refunded to you.

Money_Grabber13579

Are redundancy payments of up to £30,000 not tax free?

GlasWolf

Indeed, unless it was pay in lieu of notice instead of an actual redundancy payment.

Linton

rustymetal wrote: »

My only income this tax year will probably be a deferred £5,225 redundancy payment, which was the personal allowance at the time of redundancy. My interest on savings is going to take me just above the current £6,475 personal allowance. HMRC inform me that this makes me a tax payer and I cannot register any of my bank accounts as non taxable because it is a “all or nothing" rule!





Ironically had I not followed Martin’s advice and gone for fixed rate deals, I could have managed my interest down below the threshold and been better off!

[FONT=&quot]Does anyone know if I can claim back some of my tax on interest retrospectively?[/FONT]

Yes you can - at the end of the year you can submit a tax return and the IR will recalculate your total income and total tax paid and refund you any excess.

I dont see you not going for a higher rate of interest could make you better off - the tax system doesnt work like that.

Paul_Herring

One thing to note - it's possible that you'll only have a marginal 10% tax rate on your savings interest, that's above your personal allowance.

So claim back the full 20% from the earnings below the allowance, and you may be able to claim 10% back from the stuff above that

Ironically had I not followed Martin’s advice and gone for fixed rate deals, I could have managed my interest down below the threshold and been better off!

Not quite sure how you work this out (presuming you do claim back all the tax you're entitled to.)

The 'all or nothing' relates to being able to complete an R85, not to not being able to reclaim tax paid if you're on the edges of the bands.

rustymetal

Money_Grabber13579 wrote: »

Are redundancy payments of up to £30,000 not tax free?

Thanks for your reply!

The payment was spread over 3 years,.£30,000 in the first and £5,225 at the start of the next two. The only thing I hadn't bargained for is being taxed on all of the £5,225 and having to wait a year to get it back.

Money_Grabber13579

rustymetal wrote: »

Thanks for your reply!

The payment was spread over 3 years,.£30,000 in the first and £5,225 at the start of the next two. The only thing I hadn't bargained for is being taxed on all of the £5,225 and having to wait a year to get it back.

Ah! So you've already used the tax free portion. I assume HMRC have just adjusted your tax code and that's why you had to wait a year to get the tax back?

In addition to this, as has already been stated, if you have no other income, the first £2320 for the 08-09 year above the personal allowance will be taxed at 10%. Anything below the personal allowance will be tax free. Of course, if you have other income from employment, it will be taxed first and probably the 10% savings rate will not apply. The SRP will be taxed last.