Coming in April – the new 0% tax rate on savings interest
For some years now, there has been a 10% starting rate for Income Tax on savings interest to assist those with lower income. The benefit of the starting rate is that people with taxable income between £10,000 and £13,540 (not including savings interest) may only have to pay 10% on their savings interest, rather than the usual 20%.
From 6th April, the starting rate is being expanded from £2,880 to £5,000 and the 10% tax rate reduced to 0%. This means that, for the forthcoming 2015/16 tax year, those with income of less than £15,600 will pay no tax on their savings.
HMRC reckons that as a result of this change, around one million more people will be able to register to receive their savings interest gross. To register for gross interest, a form R85 must be completed and given to the appropriate bank or building society.
It is also estimated that an additional 500,000 savers will partly benefit from this change (i.e. whose savings interest straddles the £15,600 level), meaning that some of their savings interest may be eligible for the 0% rate and some remains taxable at 20%. In such cases, tax must still be deducted at source on the whole of the savings interest, but any overpaid tax can be claimed back from HMRC using a Repayment Claim form R40.
For further information, please contact our Tax Team 01904 464100 or firstname.lastname@example.org