Interest on savings accounts.

"mick" wrote

Only if you have less than 3000-odd of other income.

If you have over 5000-odd of other income (and yet are still below the high-rate threshold), then all the interest should be taxed at 20%.

Depends on what other income you have. If you have a salary or pension in excess of about 7000, that will use up your personal allowance (about 5k) and 10% band (about 2k). Interest will then be taxed at 20% (or 40% if you're a higher rate taxpayer).

If the interest is your *only* income, you don't pay *any* tax on the first

5k or so, and then 10% on the next (approx) 2k.

"Tim" wrote

Ooops - that should have read "...about 5000-odd..."! [Not "...less than 3000-odd...".]

"Tim" wrote

Ooops - that should have read "...over 7000-odd..."! [Not "...over 5000-odd...".]

"Tim" wrote

Thanks guys, i do have a pension and part-time job over £7000 so thats it no rebate..

So if a person had no income other than taxed-at-source bank or building society interest, am I right to think he can claim a rebate of around

1,200. (20% paid on 5k = 1,000; 20% paid on 2k less 10% due = 200)?

Yes. Your tax free allowance on income applies to unearned as well as earned income, so any tax paid on the amounts you state can be reclaimed. Alternatively, the person concerned can register to have the interest paid gross (Form R85 or something, ask the bank) if his income is not going to exceed the tax free allowance level, which saves the hassle of a claim for repayment. .

Yes, provided the interest received was at least 7000 gross (5600 net). You can't reclaim tax you haven't paid!

If the interest was all from one source, you'd still have to pay the tax up front and then reclaim it. You can only use an R85 for a source of income which is *entirely* within the tax allowance. So if, for example, you had two sources - one paying 5000 and one 3000 - you could have the 5000 source paid tax free. You'd still have to pay tax on the 3000 source and reclaim some due to having paid 20% on the part which should only have been

10%. As far as I know, there's no legal way of arranging things so that you automatically pay the right tax on the 10% part.

I'm not sure what you suggest is actually legal. It was my understanding that, if your total income was likely to be above the tax free threshhold, you were not entitled to register to receive interest gross from any source, but had to receive all the interest tax paid and claim the tax back later, but I could be wrong on that. If you did it, however, I doubt if the revenue would take any action since they would not be out of pocket.

Interesting! I've just looked at the online helpsheet that accompanies the R85 and it does indeed tell you not to use the form unless your total potentially taxable (my words) income is less than your allowance.

However, some years ago, when discussing my wife's tax affairs with her tax office, I was specifically advised to use R85s for any sources which were within her allowance even though she was (just) a taxpayer when taking other sources into account. In any event, we've always ended up having to reclaim

*some* tax - because the bits which *are* taxed get taxed at 20% instead of 10%.

The tax return form makes provision both for interest received gross and interest received after tax - so the tax man clearly expects some people to have some of both. [Although I suppose the gross interest could in some cases relate to offshore investments rather than R85'd bank/building society interest].

I first came across this when my wife was advising her great aunt, whose money was all in building societies and whose pension and total interest would have exceeded her tax free allowance. In theory, she should not have registered to receive any interest gross, but should have waited a year to reclaim any tax she might have overpaid. That wouldn't perhaps matter too much normally, but when you're 99 years old and have a life expectancy measured in months rather than years, it does.

I saw no justification for her to be out of pocket and effectively lending money to the government that she could ill afford, so, whether it was legal or not, we did in fact get her to fill in an R85 as that seemed the only way for her to receive what she was entitled to while she was still alive.