Savings for Tax Payers on Saving Income
From April 2015, taxpayers on lower incomes will not have to pay tax on savings income.
In the 2014 Budget, the government announced that it would reduce the starting rate of tax on savings income from 10% to 0%, assisting individuals on low income. HMRC has stated this will bring an additional million individuals who can now receive their interest gross.
At the same time, the amount on which the new 0% rate will be applied will increase from £2,880 to £5,000.
One of the reasons the government has introduced these changes is that it relieves the burden on HMRC, who have to divert dwindling resources to the exercise of dealing with claims of rebates.
In reality it means most individuals who have a total income of less than £15,600 will not have to pay tax on their savings income. Individuals who have total income of less than their personal allowances plus £5,000, will be able to notify their bank or building society to receive their interest gross.
The ability to receive interest gross is based on an individuals estimated taxable income between 6 April 2015 and 5 April 2016, how much of the taxable income is savings income and their tax free personal allowances for 15/16.
There may be cases where some savings income is taxed at 0% and the remainder at 20%.
There are different forms to complete for registering to receive interest gross and for reclaiming the tax paid on the interest, depending on the circumstances.
Where an individuals income and savings income is less than £15,600 and they have all their tax free allowances available, they can register to receive interest gross using Form R85 and providing it to their bank or building society.
Where an individual’s income is more than £15,600 and they have savings income (interest) on top of the £15,600 limit, then all the savings income is taxed at 20%.
Where an individual has non saving income of less than £15,600 and has some saving income, they can claim back some of the tax on the interest, by using Form R40 and submitting it to HMRC.
For more information on whether the reduction in tax on savings income applies to you please contact Avery Clifton Reading Accountants.