new nil tax rate on savings income

SallyG

http://www.moneymarketing.co.uk/news-and-analysis/pensions/savers-face-tax-hit-as-income-tax-and-pension-changes-bite/2018300.article

"From April this year the starting tax rate on the first £5,000 of savings income will drop from 10 per cent to nil, at the same time as the pension freedoms allow savers to make ad-hoc withdrawals from their pots.
As a result of the tax changes, someone could earn £15,600 from pensions, earned income and savings income such as bank interest and pay no tax at all."
Can anyone explain simply and kindly how this works?
If someone's personal tax free allowance is £10,600 a year must the next £5,000 be interest on savings to go untaxed?

CLAPTON

SallyG wrote: »

http://www.moneymarketing.co.uk/news-and-analysis/pensions/savers-face-tax-hit-as-income-tax-and-pension-changes-bite/2018300.article

"From April this year the starting tax rate on the first £5,000 of savings income will drop from 10 per cent to nil, at the same time as the pension freedoms allow savers to make ad-hoc withdrawals from their pots.
As a result of the tax changes, someone could earn £15,600 from pensions, earned income and savings income such as bank interest and pay no tax at all."
Can anyone explain simply and kindly how this works?
If someone's personal tax free allowance is £10,600 a year must the next £5,000 be interest on savings to go untaxed?

it means that if your pension (and/or earned ) income is less than 10,600 and you have non ISA saving interest, then you could pay no tax for total income of 15,600.

so the key word is 'could' and not 'would'.

Thrugelmir

ISA's are expensive to administer so the rates on offer for small balances are dismal. This move should allow lenders to offer far better rates to the legions of small savers.

molerat

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

so with earnings of £13K
10600+5000=15600 -13000 = £2600 of tax free savings interest

kidmugsy

Thrugelmir wrote: »

ISA's are expensive to administer so the rates on offer for small balances are dismal. This move should allow lenders to offer far better rates to the legions of small savers.

I suppose many people might feel that they can safely pull £30k out of Cash ISAs, because a couple can stuff it back in quickly when things change. I wonder whether there will be Lifetime Allowances for ISAs after the election. I must ask "Krystal" Balls. Or, I wonder, might Alex Salmond insist on being Chancellor of the Exchequer as part of the price of backing Ed Moribund as PM? Exciting times, eh?

kangoora

What counts as interest? Is it only bank accounts or do things like bonds or gilts also count as interest (coupon)?

DW and I believe that £30k/year net would provide a very comfortable retirement so I'm sure people can see where I'm going with this when you can conceivably get £31.2k year without paying any tax between 2 people assuming everything gets divided correctly. Especially if I retire early as my DB pensions are forecast to be around £12k and DW has no DB pensions.

Also, if you sell shares/funds does that count as income/earnings? To my mind it's the same as selling your TV as you are disposing of an asset and as long as you don't break the CGT threshold do you need to declare it as earnings to HMRC?

kidmugsy

kangoora wrote: »

What counts as interest? Is it only bank accounts or do things like bonds or gilts also count as interest (coupon)?

I don't know, but with bond yields so low at the moment, I don't care either.:)

kangoora wrote: »

Also, if you sell shares/funds does that count as income/earnings?

No: that would be exposed to CGT, but the annual allowance is £11k in 2014-15.

xylophone

You might have your savings in eg a corporate bond fund which paid interest - this would be savings income.

But if you were a non taxpayer, this would be paid net by the fund, and you would have to reclaim overpaid tax on form R40.

See http://www.pru.co.uk/investments/guide/taxation/

"Income from fixed interest funds"

CLAPTON

kangoora wrote: »

What counts as interest? Is it only bank accounts or do things like bonds or gilts also count as interest (coupon)?

DW and I believe that £30k/year net would provide a very comfortable retirement so I'm sure people can see where I'm going with this when you can conceivably get £31.2k year without paying any tax between 2 people assuming everything gets divided correctly. Especially if I retire early as my DB pensions are forecast to be around £12k and DW has no DB pensions.

Also, if you sell shares/funds does that count as income/earnings? To my mind it's the same as selling your TV as you are disposing of an asset and as long as you don't break the CGT threshold do you need to declare it as earnings to HMRC?

the income from bonds and gilts generally count as 'interest ' for tax purposes but it depends upon the details of what exactly you hold.

capital gains from selling shares have a separate allowance and don't count as income
if you sell assets that exceed 4 x the cgt allowance then you need to inform HMRC even if no tax is payable