What does HMRC mean with this 10% savings rate?

guli

Hi ya,

I have little savings, most of it is in pension/ISA wrappers. I'm perplexed with this statement from IR. Can someone who understands it explain it to me please?

Thanks!



* 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.

EdInvestor

It means that if you have earned income (salary or pension) above your personal allowance plus 2320, then you do not get the 10% rate on the interest income from your savings.

Savings basically means interest on cash outside ISAs.Pensions are not under the savings category for tax purposes..

Mikeyorks

Have a read of some of the threads on the 'Cutting Tax' forum? However - it's essentially a 'pseudo' band, as it only exists in certain circumstances. Your savings interest is the top slice of your earnings. And you only get this new 10% Savings band if your interest hits any part of the band formed by "personal allowances + £2320".

Example : Personal allowance £5435. Earned income from e.g. pension £5000. Savings Interest £1000.

Result : £435 of your interest wholly tax free. The remaining £565 chargeable at 10%. (If 20% deducted at source - as it should be - you reclaim the balance after the year end)

Example : Personal allowance £5435. Earned income £7000. Savings Interest £1000.

Result : £1565 of your income (£7000 - pa of £5435) chargeable at 20%.
£755 of your interest ({£5435 + £2320} - £7000) chargeable at 10% and the balance of your interest (£245) chargeable at 20%

Example : Personal allowance £5435. Earned income £8000. Savings Interest £1000

Result : All income above £5435 is chargeable at 20%. All interest similarly charged at 20%. The 10% does not (as for most people) apply.

Part of the rationale of this last Budget was tax simplification. As is evident from the penultimate example .... it's neither simpler for HMRC nor their customers.

guli

Thank you!

I didn't even know there is a cutting tax subforum. Too many subforums. Will visit.

Both your explaination makes it as clear as day..