Tax on interest

tomandkath

Apologies if this should be on the cutting tax forum instead.
I earn around £5000 a year and have several savings accounts from an inheritance paying puny interest. I've received a letter from HMRC saying they reckon my income plus interest is more than my tax free allowance and that I will no longer be able to get gross interest. The interest I've got on my savings is nothing near the £4,400 I thought I was allowed to get. Before I ring them up and make a chump of myself, am I wrong? Is interest income different to work income in some way?
If I've done my sums wrong and it does come to more than £4,400 surely I should only have to pay tax on the amount over that and not the whole lot?

xylophone

Have you registered R85s on your savings accounts?

You can only do this if your total income is less than your tax free allowance.

If you are eligible for the 10% band on savings income, you can reclaim any overpaid tax on Form R40.

See here http://www.hmrc.gov.uk/taxon/worked-examples.htm#2

Put your own figures (be sure that they are accurate) into
Example 2 - a saver with earnings of less than their Personal Allowance

and check your situation - ring HMRC if there is a problem.

tomandkath

Thank you. I've registered R85s on all my savings accounts but wasn't aware of the 10% band. I'll do my sums properly tomorrow and can at least apply for that if it is more than I'm allowed.

xylophone

I've registered R85s on all my savings accounts

Don't forget to rescind them if you find that your total income is more than your personal allowance.

BeachNut

xylophone wrote: »

Don't forget to rescind them if you find that your total income is more than your personal allowance.

HMRC will do that for you, if you do forget...