Tax on savings - confused!

fnarkfnark

I'm a little confused as to how much I'm likely to pay tax-wise on my personal savings.

Is it like this:
Savings + Salary < £2,230 taxed at 10%
Savings + Salary < £34,600 taxed at 20%
Savings + Salary > £34,600 taxed at 40%

or this:
Savings < £2,230 taxed at 10%
Savings < £34,600 taxed at 20%
Savings > £34,600 taxed at 40%

Thanks all...

System

From the HMRC website:-

"There will be a new 10% starting rate for savings income only, with a limit of £2320. If an individual’s taxable non-savings income is above this limit then the 10% savings rate will not be applicable. There are no changes to the 10% dividend ordinary rate or the 32.5% dividend upper rate"

jennifernil

So if I have a State Pension of say £2500 and Interest on savings of say £6000, how much tax will I pay? (I will be 60)

Debt_Free_Chick

jennifernil wrote: »

So if I have a State Pension of say £2500 and Interest on savings of say £6000, how much tax will I pay? (I will be 60)

Assuming you have the full personal allowance, nothing.

To calculate income tax, you need to gross up the interest you receive on your savings (assuming tax is deducted on the interest you earn). You then add this to your income (State Pension, in your example). You then deduct your personal allowance. This year the full personal allowance is £5,345 if you're under age 65.

Basically, if your income + (gross) savings interest is less than £5,345 (assuming you get the full personal allowance), then you pay no tax.

If your income + interest is more than £5,345 you'll pay income tax at 20% - but only on the amount above £5,345.

HTH

CLAPTON

assuming that 6000 in interest is gross

basically the 2500 pension is tax free
then the next (5435-2500) = 2930 of interest is tax free
then the next 2320 of interest is taxed at 10% i.e pay £232

and then the remainder of the interest i.e 745 is taxed at 20% = 149

thats how it is in tax year 2008-09

Mikeyorks

jennifernil wrote: »

So if I have a State Pension of say £2500 and Interest on savings of say £6000, how much tax will I pay? (I will be 60)

(On the assumption it is the Interest which is £6k ......... and not Savings of £6k)??

Total income £2500 + £6000 = £8500

PA £5435 ..... leaves £3065 taxable
£2320 @10% = £232.00
£745 @20% = £149.00

Total tax £381.00

..... not possible for R85s to be in place, therefore all would have been deducted at 20% initially ..... and a claim made for the 10% Band portion?

Debt-Free-Chick wrote:

If your income + interest is more than £5,345 you'll pay income tax at 20% - but only on the amount above £5,345.

Sorry DFC .... but you're forgetting the new 10% 'Savings only' Band? If your Income + Savings hits the band formed by 'PA + £2320'

---

then the savings element attracts 10%. Just to make life easier for all?


(Clapton - sorry, did start mine some while ago! But the solar powered calculator needs checking ... after sunset!)

jennifernil

Yes, gross interest say £6000. Sorry, I did not realise it was ambiguous, too late at night for my brain!

I was hoping it would be like that (getting the 10% band), but at the moment it is all a bit confusing! Not sure if it will be as much interest as that, depends on rates. I have never been a taxpayer before, and it will only be for the one year as I have to hand over most of the savings to repay our mortgage later this year.

So if tax is deducted on savings at 20%, I will be having to reclaim some of it?

Debt_Free_Chick

Mikeyorks wrote: »

Sorry DFC .... but you're forgetting the new 10% 'Savings only' Band? If your Income + Savings hits the band formed by 'PA + £2320'

---

then the savings element attracts 10%. Just to make life easier for all?

Yes - thank you. Too many changes this year for my little brain to cope with. I hadn't got my head around the fact that it's "taxable" income (non-savings) ... so you add the taxable income band of £2,320 to your personal allowance.

Good news for those over 65 with the higher personal allowance, I guess.

Mikeyorks

Debt_Free_Chick wrote: »

Good news for those over 65 with the higher personal allowance, I guess.

Exactly right. The benefit of the significant rise in their personal allowances + this new 'savings' band, appears to have gone largely unnoticed in the general clamour over the abolition of the 10% tax band.

But I dread to think how many people will remain oblivious of it ..... and what it will do to HMRC workstate in a year's time? Having just waited over 2 months for a simple Coding change ..... and which is completely wrong, despite my being thrown out of SA for being 'simple' .... everything seems to be creaking, even now.

edda

You have to claim back tax deducted on savings if it should have been at 10%:

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnSavingsAndInvestments/DG_4015739

Interest on savings is either not taxed or taxed at 20% - the bank or building society does not know your overall tax position.

So you have to wait until after the end of the tax year and then make your claim if you're at the 10% margin. How many people will understand this - or know to fill the forms in?

Mikeyorks

edda wrote: »

How many people will understand this - or know to fill the forms in?

Quite a lot I would hope. As the link you posted is to a 2007-08 page ... so all the 10% references relate to the 10% tax band which, of course, is now abolished.

But if people hit the new 10% Savings band with their gross savings income - then the reclaim mechanism is identical to that which has been in place for many years.