New non tax payer

sallysaver

Hi,
Tomorrow I will officially become a non tax payer when the allowance rises to £7475! My state pension is under this amount but I would like to know if any interest paid from my savings account brings me over the £7475 do I still have to pay tax on the amount over and above the new allowance please. Thanks - Sally

System

Yes, interest on normal savings accounts has to be included, so anything over your allowance would be taxable.

However, there is a 10% starting band for tax on savings, so the first £2,560 would fall into the 10% band (I believe that the bank / building society would deduct tax at 20% and then you would need to claim back a refund)

You should make sure that you use your full Cash ISA allowance so that you minimise the taxable interest on savings.

jem16

sallysaver wrote: »

Hi,
Tomorrow I will officially become a non tax payer when the allowance rises to £7475!

If your savings income does indeed take you over the £7475 you will be unable to claim you are a non taxpayer.

CLAPTON

how old are you?
do you qualify for the over 65 tax allowance of 9490?

sallysaver

CLAPTON wrote: »

how old are you?
do you qualify for the over 65 tax allowance of 9490?

Hi,
Not quite there yet!!!! I am 63 years young. Sally

sallysaver

BAA1 wrote: »

Yes, interest on normal savings accounts has to be included, so anything over your allowance would be taxable.

However, there is a 10% starting band for tax on savings, so the first £2,560 would fall into the 10% band (I believe that the bank / building society would deduct tax at 20% and then you would need to claim back a refund)

You should make sure that you use your full Cash ISA allowance so that you minimise the taxable interest on savings.[/QU\
\hi,
Thank you for the information contained in your post. I will have no where near £2560 interest but as the Building Society will automatically pay 20%, no doubt there will be a form I can fill in to apply for the refund but of course I realise that this could be up to a year away. Thank you very much - sally

glider3560

Keep all the statements and tax certificates from the savings accounts, then complete form R40 at the end of the next tax year, remembering to include the pension income. It is very easy and quick to fill in. HMRC will then calculate how much tax refund you are due and forward a cheque (typically takes 3-6 weeks).

Form R40 can be printed from here: http://www.hmrc.gov.uk/forms/r40.pdf

gwokka

i earn 7224 per year so under the income tax threshold, however i will get dividend income on top of this annual salary. should the dividend income be added to the annual salary, in which case im over the tax free threshold and taxed on my savings or is dividend income ignored when assessing if your over the threshold?

jem16

gwokka wrote: »

i earn 7224 per year so under the income tax threshold, however i will get dividend income on top of this annual salary. should the dividend income be added to the annual salary, in which case im over the tax free threshold and taxed on my savings or is dividend income ignored when assessing if your over the threshold?

Your salary, dividend income and savings interest should all be added to find your total income.

You should be entitled to your savings interest to be taxed at 10% though.

00ec25

gwokka wrote: »

i earn 7224 per year so under the income tax threshold, however i will get dividend income on top of this annual salary. should the dividend income be added to the annual salary, in which case im over the tax free threshold and taxed on my savings or is dividend income ignored when assessing if your over the threshold?

you imply that your total income comprises:
1. earnings £7,224
2. savings (interest) £ X
3. dividends £ Y

your total taxable income is therefore the total of 1+2+3.

do you currently get the savings income paid gross (ie tax free)? If yes then you will have to pay tax on that interest - technically speaking savings income is the last source of income to be counted when adding up your total income and therefore this "untaxed" income slice is what tips you over into the tax bracket hence you are taxed on the savings income in that case, the following examples show how to handle the 10% rate on savings :
example a taxable income less than annual allowance


every dividend paid to you should already have had a "tax credit" deducted from it and you cannot reclaim this but you will not have to pay any extra tax on the dividends as that income has already been "taxed" - technically this is not an income tax credit it is a special deduction, this is why you can't reclaim it

the above does of course assume that your total income is below the higher rate threshold of £42,475 (assuming you have the standard £7,475 personal allowance)

jem16 wrote: »

You should be entitled to your savings interest to be taxed at 10% though.

only if total income is less than 10,035 (7475 +2560), if more then all savings is at 20& and you effectively lose the right to the 10% starting rate,
example b taxable income above personal alowance

AirlieBird

00ec25 wrote: »

only if total income is less than 10,035 (7475 +2560), if more then all savings is at 20& and you effectively lose the right to the 10% starting rate,
example b taxable income above personal alowance

If total income from non-savings and dividend income is more than 10,035 then you don't get the 10% starting rate for savings income. If your total income from non-savings and dividend income is less than 10,035 and your savings and/or dividend income takes you above 10,035 then you still get the 10% starting rate for savings income on the savings that falls within the 10% band. See this example