The 10% savings rate

by **FredSykes** on Fri Dec 30, 2011 3:52 pm

I'm struggling to get my head around the way the 10% savings rate is implemented and tax calculated. Can someone explain using this info...

all grossed up..
1) Earned/pension Income £9000
2) Savings Income £900
3) Dividend Income £1500

Total Income therefore is £11,400
Allowance £10,090 due to age.

Can someone explain how any tax due/refund is calculated?

by **Peter D** on Fri Dec 30, 2011 5:06 pm

You have to claim it back :
http://www.hmrc.gov.uk/tdsi/ten-per-cent-guidance.htm
Regards Peter

by **FredSykes** on Sat Dec 31, 2011 4:04 pm

Thanks for the link.

Am I right in thinging that when the 10% starting rate for savings was introduced it made some people worse off?

For example I thought people on very low income could apply to have interest paid gross because it was likely their total income would be less than their allowance so they would pay no tax at all.

Now it seems the first £2,560 is taxed at 10% even if you have no earned income.

http://www.hmrc.gov.uk/tdsi/example23.htm

Does this mean that if someone fails to apply for interest to be paid gross they are worse off as they can't achieve the same result via their tax return?

by **Peter D** on Sat Dec 31, 2011 4:18 pm

The example is correct. You have to claim the refund via a tax return and you will not be worse off.

Yes you can apply for interest to be paid gross if you income is below you age related threshold via form R85
Happy New Year

Regards Peter

by **FredSykes** on Sat Dec 31, 2011 4:48 pm

So using the data in my OP..

1) Earned/pension Income £9000
2) Savings Income £900
3) Dividend Income £1500
Total Income therefore is £11,400
Allowance £10,090 due to age

Then..
£9000+1500-10090 = £410

So the first £410 of the 10% band has been used up but there is still £2560-410=£2150 available.

£900 is less than £2150 so all of the £900 should be taxed at 10% = £90

The £410 is taxed at 10% less 10% dividend tax credits = £0

Total tax due is £90 less any tax deducted at source.

by **maths** on Sun Jan 01, 2012 3:59 pm

The starting rate for savings (10%) applies only to savings income. It does not apply to non-savings income and dividend income.

Assuming your figures are all gross then the personal allowance is first used to reduce the 9,000 ; then against the 900; with the balance of 190 offset against the 1500 leaving 1310 of taxable dividend income.

In this case the 1310 is taxed at he dividend ordinary rate of 10% ie 131 against which the dividend tax credit of 150 (ie 10% of 1500) is offset producing no net tax charge.

If any tax has been deducted from the other income this can be reclaimed.

On these figures the starting rate for savings is irrelevant.

by **FredSykes** on Sun Jan 01, 2012 7:43 pm

maths wrote:The starting rate for savings (10%) applies only to savings income. It does not apply to non-savings income and dividend income.

Understood.

Assuming your figures are all gross then the personal allowance is first used to reduce the 9,000 ; then against the 900; with the balance of 190 offset against the 1500 leaving 1310 of taxable dividend income.

That suggests income from dividends doesn't reduce (or elimate) the 10% starting rate band on savings? That seems contrary to what it says here..

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnSavingsAndInvestments/DG_4015739

taxable savings income that falls within the £2,560 starting rate for savings Income Tax band is taxed at 10 per cent - but only if the rate band has not been used up by other income as savings income is taxed last

That seems to suggest that dividend or rental income could wipe out the 10% band on savings (Although in the example I gave it didn't).

by **maths** on Sun Jan 01, 2012 8:01 pm

I note that I have already given a full and detailed response to you on this issue a month or so ago.

by **FredSykes** on Sun Jan 01, 2012 11:37 pm

Yes sorry to be a pain.

Perhaps worth me looking at the Self Assesment forms? I've not done one for awhile but last I recall they had a step by step "this box minus that box" approach which might help my understanding. None of the HMRC worked examples seem to cover three income sources.

by **FredSykes** on Mon Jan 02, 2012 1:01 am

Ok I've just had a look at the SA forms and the work sheet in the notes for SA110 and and I think what's been confusing me is the expression "non-savings income". This does not mean "Income from everything except savings". The HMRC don't count Dividends as "non-savings income". Thanks for the help.