Why is interest on savings taxed?

hughgrant

I'm a low rate income tax earner (22%) on PAYE. I'm wondering why I'm taxed on the interest on my savings and share earnings. There is a capital gains annual allowance which I've never exceeded. Should I be asking the tax back from IR? How far back can you go?

[Deleted User]

Hi,

any interest you get on savings is already taxed at source, same with any dividends you get from shares, so what you get has already been taxed.

LittleVoice

Interest on savings does not have to be taxed at source.

As Al Mac says you do not have to pay it in future - that is for as long as the annual total of your employment earnings, dividends and savings interest are below the threshold for paying income tax.

For each savings account you hold, you need to complete a form R85 (available from the bank or whatever or here - http://www.hmrc.gov.uk/forms/r85.pdf )

dunstonh

I'm a low rate income tax earner (22%) on PAYE.

Low rate is 10%. If you are 22%, then you are a basic rate taxpayer.

There is a capital gains annual allowance which I've never exceeded.

interest is income. It isnt a capital gain. As its income, it becomes liable to income tax, subject to personal allowance.

jennifernil

What I object to is that as a non-taxpayer I still cannot reclaim the tax taken from my dividends.

ctm_2

jennifernil wrote: »

What I object to is that as a non-taxpayer I still cannot reclaim the tax taken from my dividends.

Of course you can't. You haven't actually paid any!

It's a tax credit, not tax paid.

longforgotten

But there was a time when it was possible to claim the tax shown on your dividend vouchers. The chancellor kindly re-arranged things some years ago so that it is no longer possible.

Cook_County

Gordon Brown abolished the unitary tax system when the Labour government was first elected.

Therefore the tax credit we used to get for Advance Corporation Tax is not relevant any longer.

However we still get a make-believe 10% credit...although nothing has been paid.

There is a deeper more meaningfull debate about whether savings should be taxed since they come from after-wages we earned and the tax is a disincentive to saving. But I don't think this is your question?

longforgotten

There is a deeper more meaningfull debate about whether savings should be taxed since they come from after-wages we earned and the tax is a disincentive to saving.

You bet ! I find that especially pensioners find it very disheartening when they have the interest on their savings taxed

Hoddie_2

longforgotten wrote: »

You bet ! I find that especially pensioners find it very disheartening when they have the interest on their savings taxed

Who would benefit the most if if investment income became non-taxable? Pensioners perhaps, but the largest slice would be those who are very well off to begin with.

My own opinion, for what's it worth, would be to make National Insurance-related benefits, such as State Pension, contributions-based Jobseekers Allowance, etc, non-taxable. This would save pensioners a fair bit and would reward those who have kept up-to-date with their National Insurance payments.

dunstonh

You bet ! I find that especially pensioners find it very disheartening when they have the interest on their savings taxed

Why should they be exempt?

Pensioners already get an increased personal allowance that will be close to 10k p.a. each in a few years. That allows a couple to earn £20k a year with no tax to pay. Isn't that good enough?

There is also the £7k a year ISA allowance so its not as if the opportunity to move more into a tax free environment doesnt exist.