Benefits & tax on savings interest.

Penfold2

For a few years I have been receiving IB, but have still been paying tax on my savings interest (presumably at 20%).

I've seen on the net that maybe I shouldn't have been doing so and might be able to claim a little back.

After looking at the HMRC website I can't make heads or tails of the situation.

I've seen the personal allowance numbers of £6035 (08-09) and £6475 (subsequently), but have also seen the number £2440 to which I have absolutely no Idea what it refers, and mention of a 10% tax band.

My taxable benefits amount to around £5500 and the interest to around £1500.

Any advice is appreciated, thanks.

opinions4u

Basically you have £7,000 of income.

£6,475 of that is tax free.
£525 would normally be taxed at 20%, but because it's savings interest it is only taxable at 10%.

Your savings provider has to deduct 20% tax from savings, even if you are a 10% taxpayer.

So you should get tax certificates for all your accounts and claim back what's due to you. About £52.50 for this year.

You should be able to claim something back for previous years too.

Penfold2

Thank you very much, Opinions4u.

Mikeyorks

Penfold2 wrote: »

My taxable benefits amount to around £5500 and the interest to around £1500.

If that interest is gross (?) you will have paid tax at source of around £300.

The 10% 'starting rate for Savings' sits on top of your personal allowance. And you only have to pay 10% for any interest which hits the band formed by (personal allowance + £2440). Anything within your personal allowance is tax free. Therefore (09/10 as an example):-

Taxable income = £7000.
Less personal allowance = £6475
Tax due = £ 525 @ 10% = £52.50
Tax paid = £300

Tax overpaid = £247.50


You can re-claim that on an R40. You need to adjust the above figures for income / personal allowance and the 10% rate band .... back to and inclusive of 08-09. Before that the 10% savings band didn't exist - but there was a 10% tax band that would create the same effect for you in earlier years? Maximum of six you can go back.

First link below (table at the bottom of the page) gives you the 10% rates and personal allowances for the past 3 years. The second link gives you the threshold of the 10% tax rate for 07-08 and earlier. The third link gives you the personal allowances for 07-08 and earlier.

http://www.hmrc.gov.uk/rates/it.htm
http://webarchive.nationalarchives.gov.uk/20090909205015/http://hmrc.gov.uk/stats/tax_structure/table-a2a.pdf
http://webarchive.nationalarchives.gov.uk/20090909205015/http://hmrc.gov.uk/stats/tax_structure/table-a1a.pdf

justaquestion

Thanks for starting this thread as I too was unaware of this and still confused about it. Just wondering if I understand this correctly.
Using Mikeyorks first link above,

http://www.hmrc.gov.uk/rates/it.htm


Am I right in thinking that for tax year 10/11 and for anyone earning up to £37400 main work income then the tax on the first £2440 of savings interest will be 10%

or should that be 10% tax on the interest earned on the first £2440 principal savings?

thanks

jennifernil

No, if you have that much income you pay 20% tax on interest.

jem16

justaquestion wrote: »

Am I right in thinking that for tax year 10/11 and for anyone earning up to £37400 main work income then the tax on the first £2440 of savings interest will be 10%

No the 10% band for savings income will only apply to those people whose earned income is below £6475 + £2240 so £8915. Once you have earned income of £8915 and over you no longer have that 10% band and all income over £6475 is taxed at 20% till you reach the higher interest bracket.

Mikeyorks

justaquestion wrote: »

Am I right in thinking that for tax year 10/11 and for anyone earning up to £37400 main work income then the tax on the first £2440 of savings interest will be 10%

or should that be 10% tax on the interest earned on the first £2440 principal savings?

It's neither, I'm afraid. You didn't interpret this correctly on the HMRC link?

From 2008-09 there is a 10 per cent starting rate for savings income only. If your non-savings income is above this limit then the 10 per cent starting rate for savings will not apply

Your Savings interest is the top slice of your overall income. If that top slice hits any part of the band formed by (Personal Allowance + £2440) - then the 10% rate applies to that portion. As most people (under 65) have a PA of £6475 - then your earned income needs to be less than (£6475 + £2440 = ) £8915 in order to get the 10% or any part of it. For most working people the 10% rate simply doesn't exist.

In that way it's very different to the 10% tax rate that a lot of people suggest preceded this up to 07-08. As you always went via the 10% tax rate if you were a taxpayer. You only get the 10% Savings rate in the circumstances I've described.