UK based savings and tax rate

Toutanc

Hi all,

What's the situation for UK tax savings - say any generic savings account at your local bank - with regards to HMRC? As I understand it, the bank will give you "net interests" after taxing 20% and giving that to HMRC. According to your income tax band, this may or may not be the proper amount.

In particular, if you are a "higher rate" tax earner, you need to pay 40% on your income. How does that happen for the interests earned? Is that adjusted through PAYE? Do you have to file a tax return?

Tax return guidance say you need to fill one if your are an additional rate tax payer (income above £100k). Doesn't that leave a gap for higher rate taxpayer where you need to pay more tax on your savings but don't file a tax return?

Cheers!

steelbru

At the moment, most ( all ? ) savings accounts assume you are a basic rate tax payer and deduct 20%. If you are tax exempt you can fill out a R85 form and receive the full amount of interest. Everyone else, whether higher rate tax payer, or additional rate tax payer needs to declare their savings interest in their annual tax return.

Things will be changing from next year when all interest will start to be paid gross, and basic rate tax payers will no longer be liable to tax on their interest. Higher and additional tax payers will need to continue to declare their interest.

Their is a slight further twist at the moment, for this tax year only, whereby if your income plus interest is less than about £15k, then you can get your savings interest tax free - don't have the exact figures to hand right now

xylophone

Things will be changing from next year when all interest will start to be paid gross, and basic rate tax payers will no longer be liable to tax on their interest. Higher and additional tax payers will need to continue to declare their interest.

Not quite http://www.thisismoney.co.uk/money/saving/article-3010018/Has-Chancellor-George-Osborne-s-radical-Budget-reform-killed-cash-Isa.html

Their is a slight further twist at the moment, for this tax year only,

See http://www.thisismoney.co.uk/money/saving/article-3117390/New-rule-lets-claim-5-000-tax-free-allowance-claim.html

steelbru

xylophone wrote: »

Not quite http://www.thisismoney.co.uk/money/saving/article-3010018/Has-Chancellor-George-Osborne-s-radical-Budget-reform-killed-cash-Isa.html



See http://www.thisismoney.co.uk/money/saving/article-3117390/New-rule-lets-claim-5-000-tax-free-allowance-claim.html

Thanks for clarification

What I said was sort of correct for the vast majority, but bad of me not to be precise

Toutanc

steelbru wrote: »

Everyone else, whether higher rate tax payer, or additional rate tax payer needs to declare their savings interest in their annual tax return.

So virtually all higher rate tax payers have to do a tax return? One would assume with basic saving accounts or rewarding current accounts, there will always be some amount of interest to declare, no?

What category of HRMC guidance does this fall into?

2. Who must send a tax return The tax year is from 6 April to 5 April the following year.

You’ll need to send a tax return if, in the last tax year:

• you were self-employed - you can deduct allowable expenses
• you got £2,500 or more in untaxed income, eg from renting out a property or savings and investments - contact the helpline if it was less than £2,500
• your savings or investment income was £10,000 or more before tax
• you made profits from selling things like shares, a second home or other chargeable assets and need to pay Capital Gains Tax
• you were a company director - unless it was for a non-profit organisation (eg a charity) and you didn’t get any pay or benefits, like a company car
• your income (or your partner’s) was over £50,000 and one of you claimed Child Benefit
• you had income from abroad that you needed to pay tax on
• you lived abroad and had a UK income
• you got dividends from shares and you’re a higher or additional rate taxpayer - but if you don’t need to send a return for any other reason, contact the helpline instead
• your income was over £100,000
• you were a trustee of a trust or registered pension scheme

Presumably, you can be a higher rate taxpayer, not earn more than £100k and with savings or investment income lower than £10k.

Eco_Miser

you got £2,500 or more in untaxed income, eg from renting out a property or savings and investments - contact the helpline if it was less than £2,500

The answer was in your question.

p00hsticks

Toutanc wrote: »

So virtually all higher rate tax payers have to do a tax return?

No.

All higher rate tax payers have an obligation to ensure that HMRC are aware of any interest or dividends that they are receiving so that they can pay the additional tax due - but there are a number of ways that can be achieved without them having to complete a full self-assessment tax return.

I believe there is (or certanily used to be ) a simple one page form that allows a higher rate tax payer to simply state how much they have earned in savings interest and share dividends duirng the year. Or you can simply write them a letter or phone them up to tell them.

badger09

If you need to complete a SA tax return, include interest on it.

If you don't need to complete a tax return, no form is necessary. Simply write to your tax office as soon as you know how much interest was credited in the previous tax year (6th April - 5th April).

Your tax office will then adjust your PAYE code number so that you pay the additional 20% tax due on your interest, via your wages/salary.

Keep a copy of the letter

colsten

badger09 wrote: »

If you don't need to complete a tax return, no form is necessary. Simply write to your tax office as soon as you know how much interest was credited in the previous tax year (6th April - 5th April).

Lots of people seem to imply that a self-assessment tax return is some sort of an onerous / horrible / time-consuming / treachurous thing to do.

Far from it. If your tax matters are simple - - like all your income is from employment or pensions and some savings interest - - filing a self-assessment should take all of 5-10 minutes once a year.

A self-assessment also automatically serves as proof that you have told the HMRC of all your income, and they have processes in place to collect any extra tax from you by your preferred method, e.g. adjusted tax code or one-off extra payment.

If your tax matters are more complex, you are probably required to make a tax return, anyway, and you might be well advised to pay a tax advisor to make your return for you.

I must say, I am surprised that the HMRC doesn't simply insist on everyone in receipt of payment from any employment, any pension and/or any interest or capital gains to submit a self assessment or a tax return. May be the new automatic tax return George Osborne was talking about in his last Budget will go some way towards making it easier for people to do what they should be doing.

jimjames

colsten wrote: »

Lots of people seem to imply that a self-assessment tax return is some sort of an onerous / horrible / time-consuming / treachurous thing to do.

Far from it. If your tax matters are simple - - like all your income is from employment or pensions and some savings interest - - filing a self-assessment should take all of 5-10 minutes once a year.

Even for someone with more complicated tax affairs it's not an onerous task once you have all the paperwork to hand. To be honest, collating all that normally takes longer than filling in the tax return!

Eco_Miser

colsten wrote: »

I must say, I am surprised that the HMRC doesn't simply insist on everyone in receipt of payment from any employment, any pension and/or any interest or capital gains to submit a self assessment or a tax return.

Possibly because they don't want to be bothered with all the people whose income is less than their personal allowance (and for this year, most of those with income under £15600), or those whose income is all taxed at source or exempt.