10% Tax Rate on Savings Income

uih039

Here is an extract from one of the budget commentaries to give context to my question:

The savings rate of tax, which has previously stood at 10% for income of up to £2,790 has been replaced with a 0% rate. This will apply from 2015/16 to savings income of up to £5,000 (instead of the expected band of £2,880). However, this rate will only affect people on low incomes as non-savings income is taxed as the lowest slice of income and does not attract the 10% band. Hence, only those whose non-savings income is less than £15,500 (in 2015/16) will benefit from this change.

I have a question regarding the calculation of non-savings income as mentioned above. Are pension contributions deducted before calculating non-savings income?

For example, if gross earnings are £25,500 and grossed-up pension contributions to a personal pension (not employer's pension) are £15,000, is non-savings income £25,500 or £10,500? If the latter then you could take advantage of the 0% rate on £5,000 of savings income in 2015/16.

Comments appreciated.

Many thanks.

Andrew.

purdyoaten

In your example, the contribution of £15000 does not reduce your taxable income at all - you would still pay tax on £25500. Any tax relief due on the contribution is received by the grossing up from the £12000 contribution to £15000.