Non tax payer - do I need to declare savings interest?

ceejayblue

I know that as a non taxpayer I can fill in an R85, and I have done, to have my interest paid with no tax deducted. The reason for my question is that my pension is £2600 a year (will get State Pension from September of around £134 a week). I have around £40K in savings that would normally have the interest taxed. I also have £40K in ISAs - so tax free. Although I have an R85 form completed for last year for the non ISA savings, do I need to do another one for this year. The interest is being paid at 3.06% so its quite good but its paid annually so I've no idea how much I've got until the year is up.

Sorry, if this is confusing but I'm now wondering whether I should pay interest on the non ISA savings when I start getting my state pension.

00ec25

state pension is taxable and as a new pensioner you no longer get the age related allowance so standard 9,440 personal allowance for 13/14

so your taxable income could be:
state pension @ 134/wk = 6,968
private pension = 2600
interest on 40k @3.06%= 1224
total taxable income 10,792

that takes you just over the allowance but in such cases there is a special rule that if the only reason you have taxable income in excess of 9,440 but less than 12,230 is because of savings interest you will only pay 10% rate of tax on that interest excess over 9440

details here:
http://www.hmrc.gov.uk/taxon/ten-percent.htm

obviously in your case starting from Sept 13 means you will not hit that limit in 13/14 so you can still use your R85 for 13/14 but for 14/15 you will need to check the calculation again - rates may have changed and/or you should have taken more money out of tax by transfer to your ISA

ceejayblue

Thank you, that's brilliant.