More (tax free savings income) for More!
More (tax free savings income) for More!06 March 2019 Written by James & George Collie

Money

With effect from 6th April 2015 the 10% starting rate of tax for savings income is reduced to 0% rate and increased from £2,880 to £5,000. This means that, in 2015/16, those with a total income of less than £15,600 (£10,600 personal allowance for 2015/16 plus the new 0% starting rate band) will pay no tax on their savings (£15,660 for those born before 6th April 1938).

Non-savings income is always taxed before savings income so the new tax-free £5,000 starting rate band can only apply to those earning less than the total of their personal allowance and the 0% starting rate band.

The rules around completion of form R85 are changing from 6th April so that any saver who is unlikely to be liable to tax on any of their savings income (previously total income) in the tax year can complete an R85 (for each bank/building society) and register to receive interest without tax deducted – even if they pay tax on other (non-savings) income. Where tax is likely to be due on some savings income a form R85 can’t be completed, the overpaid tax will have to be claimed back from HMRC using form R40 or under self- assessment.

Example

Angela earns £15,000 per year and £2,000 a year in interest from her bank accounts, to give total income of £17,000. As her total income is over £15,600, she isn’t eligible to register for tax-free savings. However, because the personal allowance and the starting rate band are not taken up entirely by earned income (i.e. is below £15,600), she will be able to claim back the basic rate tax deducted £600 of her gross savings income by filling in form R40 and sending it to HMRC.

The time limit for making a claim is four years from the end of the relevant tax year.

What is classed as ‘savings income’?

For the purpose of the 'starting rate for savings' (ITA 2007 s12) income falling within the definition of "savings income" (ITA 2007 s18) includes:

  • interest from bank and building society accounts;
  • interest distributions from authorised unit trusts and open-ended investment companies;
  • income which is not interest, such as the profit on government or company bonds which are issued at a discount or repayable at a premium;
  • the interest element of purchased life annuity payments; and
  • gains from policies of life insurance (onshore and offshore)

What is not classed as ‘savings income’?

  • Dividend income;
  • Rental income;
  • Pension income;
  • Income received from a discretionary trust; or
  • Foreign income charged to tax on the remittance basis

For further information or advice on using tax free savings bands, please contact Wayne Baber of our financial management company, James & George Collie Financial Management Limited on 01224 581581 or by email at This email address is being protected from spambots. You need JavaScript enabled to view it.

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