low paid, pensioners, savings and tax

TCA

The 0% tax-free savings band of £5,000 only applies if you are not filling all of your £15,500 with non-savings income. Read the case studies below:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293747/Fact_sheet_template_-_10__tax_9.pdf

crisp

Linton wrote: »

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.

whats not said is often more important. thanks for the link.

crisp

TCA wrote: »

The 0% tax-free savings band of £5,000 only applies if you are not filling all of your £15,500 with non-savings income. Read the case studies below:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293747/Fact_sheet_template_-_10__tax_9.pdf

thats helpful with those 3 examples.

current rules for those interested can be found at:

https://www.gov.uk/apply-tax-free-interest-on-savings

oldfella

in 2014-5 you would have a tax allowance of 10.5K including the age allowance, no 10p rate would apply, so you would pay 20% on everything over that.
in 2015 the situation is the same, the tax allowance increases to 10.5K equating to the 2014 age allowance, and you dont get the 0% savings rate because you have filled the tax allowance.

PeacefulWaters

oldfella wrote: »

in 2014-5 you would have a tax allowance of 10.5K including the age allowance, no 10p rate would apply, so you would pay 20% on everything over that.
in 2015 the situation is the same, the tax allowance increases to 10.5K equating to the 2014 age allowance, and you dont get the 0% savings rate because you have filled the tax allowance.

Read about Derek.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293747/Fact_sheet_template_-_10__tax_9.pdf

He has to pay tax on his earnings but can register an R85 with his bank for tax free savings interest in April 2015.

In which case, rate and interest payment date permitting, there might be a case for low income workers and pensioners closing some accounts early in the new tax year and opening new accounts that don't pay interest until the 2015/16 tax year.

The fact it will rely on R85 and not claiming money back should remove an element of complexity too.

Archi_Bald

PeacefulWaters wrote: »

In which case, rate and interest payment date permitting, there might be a case for low income workers and pensioners closing some accounts early in the new tax year and opening new accounts that don't pay interest until the 2015/16 tax year.

And stuff as much as they can into ISAs.

patientperson

oldfella wrote: »

in 2014-5 you would have a tax allowance of 10.5K including the age allowance, no 10p rate would apply, so you would pay 20% on everything over that.
in 2015 the situation is the same, the tax allowance increases to 10.5K equating to the 2014 age allowance, and you dont get the 0% savings rate because you have filled the tax allowance.

Quite correct but there is an exception. Pensioners who receive the yearly tax free allowance of £10500 have a task to perform when their annual income is in the £27,000 pa region. Any income over this figure reduces their tax free allowance from £10,500 downwards towards £10,000. To calaculate all the figures can be a real pain .. all because pensioners have been a cash cow target for the Treasury.

innovate

This doesn't make sense, patientperson. The personal allowance is the same for everybody (except some seniors who still have an additional age allowance). The personal allowance does not change as a result of your income. It just is your personal allowance.

What task do people have to perform when/why?

gadgetmind

Does anyone know how this will work for dividend income?

My understanding that allowances are applied first against earned income, next against interest, then dividends, and finally capital gains.

So, if Mrs Gadgetmind has £10k income from a pension, £5k from interest (including bonds and PIDs), and then £10k from dividends, my understanding is that she'll pay £0 in tax. Is this correct?

patientperson

innovate wrote: »

This doesn't make sense, patientperson. The personal allowance is the same for everybody (except some seniors who still have an additional age allowance). The personal allowance does not change as a result of your income. It just is your personal allowance.

What task do people have to perform when/why?

It stems from the 'We are all in it together' moment and here certain pensioners will have their personal allownce reduced.

http://www.hmrc.gov.uk/incometax/personal-allow.htm Personal allowance 2013 - 2014

Personal Allowance - If you were born before 6 April 1948 and your income is between £26,100 and £100,000 (This is for 2013-2014)

If your 'adjusted net income' - read more below - is over £26,100 (the income limit for higher allowances) but not more than £100,000, your higher Personal Allowance is reduced by half of the amount - £1 for every £2 - you have over the £26,100 limit, until the basic allowance is reached. So if, for example, you're born after 5 April 1938 but before 6 April 1948 and have income of £26,600 - £500 over the limit - your higher Personal Allowance is reduced by £250 to £10,250.
For 2014-2015 the net figure is increased to £27,000 but the same applies as above when income exceeds £27,000.

Extra work .. all depends how many savings accounts one has .. but over 200 to find the exact interest paid is a pain as most (normal) pensioners do not need to fill in a tax form.

Most interest received from banks and building societies will have 20% tax deducted (unless exemption forms are in place). Banks and building societies then pass the interest to HMRC and here comes the real rub. In this age of computers where even small laptops are able to contain 1TB of data then why does HMRC need to ask for the interest figures gross/net whilst they should already have access to this information. Every taxpayer has an N.I. number and although the task sounds daunting it is a piece of cake for large number crunching computers to receive and store per person., account and so forth. This is my personal opinion.