After April 2008 10% tax band stays for unearned income?

For savings AFAIR the 10% is being retained. I think quite a small # of people will be impacted.

Other groups of low paid workers will be shafted when the 10% band for employment income disappears.

For savings, not to all unearned income, it won't to pensions for instance.

If it's below their tax allowance savings interest will be liable at

It'll probably go up in line with inflation, wait till the budget.

If you have earned income (or a pension) which is below the personal allowance, plus investment income which takes the total above the allowance, does anyone know which is considered first - 'cos it would make a difference as to whether or not any of it is taxed at 10% rather than 20%.

In other words, if the earned income is offset against the allowance, it would be the unearned income which goes above the allowance, so that the first part is taxed at 10%. However, if the unearned income is offset against the allowance, it would then be the earned income which goes above - and gets taxed at 20%.

Which is it?

"Andy Pandy" wrote

That'll be because pensions are ( & always have been, even when rates differed in the seventies) taxed as *earned* income, won't it?

Will it? Is it not the case that earned income attracts liability to NICs, but pensions do not?

"Ronald Raygun" wrote

Of course - but that's a different "tax", though.

On pensions:- - Income tax was payable as for earned income (when rates differed between earned & unearned). - National Insurance is not payable.

Different rules, eh!

Bitstring , from the wonderful person Tim said

And the '10% stays for unearned income' appears (if true) to be yet another case where the 'tax simplification' has just made it more complicated. Why, oh why, Lord ... let's just raise the 0% band (tax free allowance) by some larger amount and abolish the 10% band for everything. Oh wait .. except CGT.....

Thanks for all the replies on this subject. It is a bit confusing and hard to figure how it will all be put into practice. I guess most people will just continue to have their interest on their savings taxed at source at 20% as usual and some will then claim back whatever rebate they are due on this after the end of the tax year. Then are those who can continue to have no tax taken off it by filling in the R85 exemption form but that could not apply to too many people.

I wonder what happens in the case of those on taxable benefits, are these considered 'earned' income or 'unearned income' and does the 10% band apply to these? Thanks dee

Well I never understood why you end up paying 'income' tax on capital gains at all. Not that I need to worry about that particular issue.

What is more strange is how the CGT reform seems to mostly benefit BTL landlords, I wouldn't think they were at the top of the list for govt. largesse (as those paying 10% are now at the bottom of the list). The old reliefs were to encourage longer term investment and made much more sense. Of course they were complicated but just as people get used to it, the govt. changes it.

Why "except CGT"? One could raise *its* 0% band too.

You don't. You pay 'capital gains' tax.

Because, AIUI, ALL CGT is planned to be taxed at 10%, so you'd have to raise the band rather a long way. The 'income tax' 10% band is a rather narrow piddly little thing.

AIUI the plan is to tax capital gains at 18%, not 10%, so the 10% band

And AFAIR the remainder is added to your 'income'..

With employee share options you can also pay NIC (as a bonus).

Your are right .. me bad. Just what we needed a new 18% rate.

wonderful

What about dividends, the 10% band goes right up to the basic rate limit!

The rates and bands have not yet been announced. See

I was talking about now - the 10% band for dividends goes up to the basic rate limit.

Yes, and here's one consequence:

Suppose you had no earned income, but enough savings interest to soak up your personal allowance and your 10% band.

Your marginal rate on earned income, should you decide to take a small job, is then 30% rather than 20%!

Now suppose you had enough savings interest to put you over the basic rate limit.

Your marginal rate on earned income, should you decide to take a small job, is then 50% rather than 40%!

(I think.)

(And ISTR it is true BTW.)