Question about tax on savings

freddy08

How is it decided whether you pay the lower or higher rate of tax on savings?

Just wondered as I'm never asked what my salary is when opening a savings account.

zzzLazyDaisy

If you are a higher rate tax payer you have to complete a tax return each year. One of the questions is about interest on savings. You have to provide the information given on the tax certificate provided by your bank each year. The bank deducts 20% tax automatically which covers the basic rate tax payer, and for high rate tax payers the appropriate adjustment is made when the tax return is calculated.

debbie42

They will take 20% off as the default, unless you supply an R85 form to indicate that you aren't liable for the tax, in which case they pay the gross interest.

If you are liable to a higher rate tax then it's your responsibility to fill in a tax return. The bank don't collect the extra rate, it's HMRC who handle that.

freddy08

So at which point are you liable for a higher tax rate?
If you earn above £41,000?

debbie42

There's some useful advice here:
http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnSavingsAndInvestments/DG_4015739

Milarky

freddy08 wrote: »

So at which point are you liable for a higher tax rate [on savings]?
If you earn above £41,000?

Correct, because they way your tax code and PAYE functions, it is assumed that your only source of income is your job. Any income from a non PAYE source (like savings interest) needs to bee added to the total. This raises your income - and in this example it is all in the range of higher rate tax. You thus now owe the difference between 40% and the 20% already paid.

HTH

CHR15

I thought the higher rate had been dropped to £36,500 due to the 10p fiasco.

zzzLazyDaisy

From the Inland Revenue Site....


Taxable Bands

2007/8 Higher rate: 40%
Over £34, 600

2008/9 Higher rate: 40%
Over £36,000

CHR15

'stards! even lower than I thought

I didn't think it was compulsory to do your own tax return as a higher rate taxpayer. I have never done one and been higher rate for years.

I asked a friend who works for the Inland revenue. She seemed to think I didnt need to do one unless I chose to.

I only pay higher rate from earnings, I have never mentioned savings income to anyone.

no doubt I will be in it soon then

ctdctd

zzzLazyDaisy wrote: »

From the Inland Revenue Site....


Taxable Bands

2007/8 Higher rate: 40%
Over £34, 600

2008/9 Higher rate: 40%
Over £36,000

Don't forget your personal allowance as well - about £5,500 so you need to earn above about £41,500 before you are liable for higher rate tax.

Lokolo

I didn't think it worked like that.

I thought you paid:

0% on first £5500
20% on the next £31.5k
40% on anything over.