pensioner - tax on savings?

thehound

Hi all,
If my elderly relative has a private pension that brings her earnings to just over her personal allowance (she pays about £140pa income tax) am I correct in thinking she has to pay tax on her savings account interest?
i.e. she shouldn't request to have her interest paid gross.

Thanks in advance.

Alfie_E

Yes, it must be withheld at the lower (20%) rate for interest. However, only paying £140 of income tax implies she is paying tax only at the starting (10%) rate. This mean that some or all of the interest is also eligible to be taxed at the basic rate. For each completed tax year, it is possible to submit an R40 to claim back the difference.

This isn’t going to apply for much longer, as the starting rate is going to be scrapped. At that time, your relative should total up all her expected income for the tax year and compare it against her then tax-free personal allowance.

oldfella

This isn’t going to apply for much longer, as the starting rate is going to be scrapped.

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not so - 10% rate will continue for savings income

Alfie_E

Yes, sorry. As described in Tax blow to younger pensioners, but presumably equally applicable to anyone on a low income. Although it just says “income from your savings is at the top of the pyramid”, I presume it’s still interest ‘below’ dividends.

Only Mr Gordon Brown could make a tax system more complicated by simplifying it.