A new 10,000% income tax rate for savers?!
3rd March 2016
Another tax change from April 2016 is the introduction of an annual savings allowance. This means that most savers will be able to earn some interest tax-free but as with everything tax related, this is far from simple.
The allowance is £1,000 for basic rate taxpayers, £500 for higher-rate taxpayers and £0 for additional rate taxpayers. The interaction with the 0% starting tax rate for savers and various dividend rates results in complex calculations for taxpayers with relatively simple affairs.
However, you do not want to get caught on the wrong side of the income trap; let’s look at an example provided by The Chartered Institute of Taxation:
Becky has earned income and £1,000 of savings income. Her total income equals the basic rate limit, so she is entitled to a £1,000 savings allowance. Her savings income is taxed:
£1,000 x 0% = £0.00
Anne has earned income and £1,000 of savings income. Her total income is £1 above the basic rate limit, so she is entitled to a £500 savings allowance. Her savings income is taxed:
£500 x 0% = £0.00
£499 x 20% = £99.80
£1 x 40% = £0.40
For Anne, the additional £1 income results in a £100.20 tax charge
A final word of warning - interest will no longer be taxed at source, so individual taxpayers need to be able to work out whether they have a tax charge and if so, notify HMRC and pay any tax due.
For more information on this matter, please contact Karen Oliver on 01273 701200 or firstname.lastname@example.org
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