Tax on Interest: Budget Changes

planteria

from HL:

"10% starting rate for savings abolished - currently, the first £2,790 of savings income above the tax-free personal allowance is taxed at a starting rate of 10%, for those with total annual earnings less than £15,500. From April 2015 this will be cut to 0% and the band extended to £5,000."

as a tax payer, interest is paid net of 20% tax, is that right? should the tax be claimed back?

Reaper

No, the 10% rate is a weird and complicated rule that only applies if your income falls in a narrow bracket.

If you are a basic rate tax payer earning more than the upper limit of the 10% bracket you don't qualify for any of it.

More info here:
http://taxaid.org.uk/info/taxation-of-savings/the-10-starting-rate-for-savings-income

P.S. Sorry, I should of course have said unless your income does fall within the bracket in which case you are entitled to it.

teddysmum

The tax may be claimed back, if your income is eligible. This link gives worked examples.


http://www.hmrc.gov.uk/taxon/worked-examples.htm

evenasus

Today’s Budget (19 March) also increased the amount of savings income that the new 0 per cent rate applies to, from £2,880 to £5,000. This means anyone with a total income of less than £15,500 will not pay any tax on their savings.

http://www.ftadviser.com/2014/03/19/ifa-industry/tax-planning/budget-tax-rate-on-savings-income-abolished-KozlMYXopLS179o6t3MUVK/article.html

planteria

thanks guys. i am unsure exactly how to handle this...

ISAs are tax free, of course. i had understood that, as a taxpayer, interest on savings were taxed at source. end of story.

however, my salary is £10k. so, with no increase, i am about to fall out of paying any PAYE..

and what are the implications of the change yesterday? it was referred to on Radio4 as though the first few thousand of Savings Interest would be tax free each year:)....but perhaps that was before the details had been digested:think:

planteria

what about if someone is paid dividends, as a director of a company? that must be part of 'total income'.

there must be a lot of people who will be able to receive their Savings Interest tax free, though.

innovate

planteria wrote: »

there must be a lot of people who will be able to receive their Savings Interest tax free, though.

It's all people whose total income from all sources is less than £15,500. Simple as that. I wouldn't have thought this includes many company directors.

le_loup

Unless they take their "income" as capital gains!

talexuser

I'd completely forgotten about the 10% band and thought at first I'd been overcharged on all my interest at 20%, before remembering the income band rules. This has got to be a better way, reducing unnecessary complexity and more expensive tax gathering systems.

planteria

Savings are taxed at source at 20%, is that right?

file:///D:/Documents%20and%20Settings/User/My%20Documents/Downloads/Budget%202014%20-%20CSFS%20Summary.pdf

im not clear exactly how the system works now, and how it will work:think:

Archi_Bald

It is quite easy to understand - see 1.170 onwards. Nice graphic that explains the lot.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293759/37630_Budget_2014_Web_Accessible.pdf

It is irrelevant to anyone whose total income plus savings interest exceeds £15,500.