Tax on savings for pensioners?

FranW_2

This may be a very dim question, but can anyone tell me if pensioners pay tax on their savings? My dad (aged 79) is selling his house and will have a some money to invest. Any suggestions for the best accounts also welcome although obviously I will look at all other threads for suggestions/info.
Thanks.

Bossyboots

Tax is payable on his savings but subject to his personal allowance. For his age bracket this is over £6,000 per year (I'll go and have a look and post the exact figure).
He will therefore only start paying tax when his income reaches that amount but of course his pension is also included as income.


The tax allowance is £7,200 from April 2005

FranW_2

Thanks for that, he will have alot more than 7,500 to invest, so how much tax generally are we talking about and is it on the capital or on the interest????????

Bossyboots

FranW wrote:

Thanks for that, he will have alot more than 7,500 to invest, so how much tax generally are we talking about and is it on the capital or on the interest????????

£7,200 is set against his income, not his capital. If you say for example his pension is £5,200 a year, he can then earn another £2,000 before paying tax. As an extremely rough figure, 40,000 at 5% is £2,000. After that, £2,020 of income is taxed at 10% and thereafter 22%. Obviously if he was to get a lower or higher return on his savings, this would affect the level at which it will become taxable.

(If I have worked that out wrong anyone, please correct me. Maths is not my strongest point).

knuckledragger

FranW,
you've misunderstood the above answer.
The INCOME generated by investing the money (+ any pension) will be subject to tax after the £7200 has been reached.

isasmurf

You are taxed on the interest received. The interest is treated as income, so he will need to add all his other income together, state pension, private pension, etc. to determine what tax he should pay.

All savings accounts automatically deduct interest at 20%. If all his income is less than his personal allowance (£7,220) then he can fill in a form R85 to receive interest tax free (available from his bank/building society, or from https://www.claimyourtaxback.co.uk).

If his total income is less than £2,090 more then his personal allowance then he pays 10% on his savings. He will need to claim some tax back from the taxman as there is no way to get 10% tax paid on your savings that I know of.

If his total income is more than £2,090 more than his personal allowance then he pays 20% tax on the interest on his savings.

Bossyboots

Well done isasmurf. I had just come back to correct my post where I put 22% but I'll leave it now.

I agree with you that the 10% tax would have to be claimed back off the taxman.

FranW_2

Thanks for all your help, very useful and much appreciated.

cheerfulcat

Hi, Fran,

There are savings and investment products which are free of tax...have a look here -

http://www.adviceonline.co.uk/topicalcontent/a_guide_to_tax/

HTH

Cheerfulcat

dunstonh

Depending on the size of the investment and the impact it will have on his taxable income, he may end up wiping out some or all of that personal allowance (age allowance) if he invests it in the wrong place (such as bank or building society account, high yield unit trust or OEIC). Make sure he choses the right style of investment so he doesnt pay more tax than he needs to

EdInvestor

cheerfulcat wrote:

Hi, Fran,

There are savings and investment products which are free of tax...have a look here -

http://www.adviceonline.co.uk/topicalcontent/a_guide_to_tax/

HTH

Cheerfulcat

Just to set the record straight, there is no tax on dividend income from shares to basic rate taxpayers (or 10% or non-taxpayers). HRT pay 25%.