Budget 2007 - 10% Tax Band on Savings??

2am

Despite the well-publicised wider abolition of the 10 per cent income tax rate for Earnings and Pensions, the 10% Tax Band is apparently being retained for SAVINGS income. What is the relevant definition of Savings? Does this mean the retaining the 10% Tax Credit on Dividends? Or does it also imply that the tax deduction at source on Bank Deposit Savings will be reduced from 20% to 10% for basic rate taxpayers? However I would have expected the Chancellor to milk maximum publicity from such a reduction.

Milarky

Anyone's guess. If building societies and banks don't continue to deduct at 20% there is the risk (to the Treasury) of mass underpayment of tax (i.e you only need about £50k in savings to receive as much in gross interest as the 10% band - £2230 in 2007/08)

I'd have thought that you pay your savings interest as now and claim a refund in respect of the 10% band at the end of the tax year - just as you presently have to as a pensioner whose pension is less than their personal allowance+10% band. They have to register their accounts for tax and submit private pension plus savings-income (I know this because I helped my mum with it last year) The refund is quick - about a fortnight - AND you only make a declaration, you don't have to send in statements (etc) since the individual banks and building societies can confirm what you report via the account numbers put on the refund sheet. This system works well but potentially most workers will have some savings and will earn more than the personal allowance. At a guess this would mean about 10 times as many refunds.

So it may be possible to go the 'self-cert' route by saying to savers (c/f registering savings accounts for gross interest at present) "if you expect to earn less than [10x10% allowance] in interest this year you can ask for 10% only to be deducted from your accounts but if you expect to earn more than this amount you must not make such a declaration" - and the whole will be policed by HMRC checks on people in following tax years.

MarkyMarkD

As far as I can see, there's absolutely no change to the present arrangements for savings income, so no publicity opportunity for Gord to seek.

As Milarky says, savings income will continue to be taxed at source at either 0% if you register with an R85, or 20% if you do not. Therefore the majority will pay the right amount of tax up-front, and the (very) small minority whose marginal tax rate is 10% (for savings income only) will have to reclaim the difference.

It will only affect those whose earned income is below the basic allowance + 10% band, but whose savings income takes it above basic allowance.