low paid, pensioners, savings and tax

crisp

if you are a pensioner with a combined state pension and SIPP of say £12k a year and savings interest of £10k; should your savings be tax free?

bowlhead99

Do you mean, "should they be tax free" as some sort of moral / ethical question about the philosophy of who should bear the tax burden?

If so, I would say yes pensioners should pay tax if they have £22k of income, everyone else has to.

Or do you just mean, are they actually tax free under the current rules for this year and/or the prospective rules announced in the budget this week?

If so, no.

Archi_Bald

If the savings are all in one or more ISAs, the interest will be tax free.

If they are not in an ISA, you might want to start putting them into one.

Although you might get more interest if you have some of the money in a few current accounts.

JustLikeThat

Perhaps the OP meant to say interest from £10000 pa in which case no tax is likely due under the latest budget announcement.
If the OP does in fact earn £10000 pa interest (principal of £500,000 at 2% for example), well...

crisp

under current rules. 3 answers and two are in conflict.

crisp

JustLikeThat wrote: »

Perhaps the OP meant to say interest from £10000 pa in which case no tax is likely due under the latest budget announcement.

so here you are saying no tax is due....

crisp

bowlhead99 wrote: »

Or do you just mean, are they actually tax free under the current rules for this year and/or the prospective rules announced in the budget this week?

If so, no.

and here you are saying tax is due...

intuition suggests tax is due, but listening to chancellor osborne it sounded like no tax is due, which is contrary to what I believed

PeacefulWaters

Have you got £500k in savings, or a figure not far off that? Or do you have £10k in savings?

if you are a pensioner with a combined state pension and SIPP of say £12k a year and savings interest of £10k; should your savings be tax free?

To answer your question, worded as it is, assuming a normal bog standard personal allowance you will pay a bit of tax on the pension income and tax should also be payable on the savings interest too. Unless the savings that is generating £10k a year in interest is held in a tax free wrapper.

innovate

crisp wrote: »

intuition suggests tax is due, but listening to chancellor osborne it sounded like no tax is due, which is contrary to what I believed

What exactly did you hear him say?

crisp

innovate wrote: »

What exactly did you hear him say?

But there is one final reform to support savings I would like to make.

Mr Deputy Speaker,

There is a 10 pence starting rate for income from savings. It is complex to levy and it penalises low income savers.

Today I am abolishing the 10 pence rate for savers altogether.

No tax on those savings whatsoever.

And we will almost double this zero-pence band to cover £5,000 of saving income.

One and a half million low income savers of all ages will benefit.

Two thirds of a million pensioners will be helped.


OK in my example I use £10k, but if you have 5k and a low income would that 5k be tax free?

I assume it is not a saving allowance applicable to every saver.

Linton

This special rate of tax for savings applies to people with low non-savings income. It is rather complex but....

In your example you have savings income of £10K and non savings income of £12K. Assume the tax allowance is £10K and the savings tax limit is the new one of £5K.

So (I think) the way it works is .....

Your £10k tax allowance goes against the £12K non savings income

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> £2K charged at 20%

For the savings £5K-£2K = £3K

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> £3K of your savings interest is tax free, £7K is taxed at 20%.

In understanding the budget you need to be very careful about relying too much on what the Chancellor said. In my view, some of it was misleading. The only reliable source of data on the budget is that supplied by the HMGov here.