Low rates put savers into tax free band

Collapsing deposit rates mean thousands of individuals living off savings are becoming eligible to receive interest gross as their incomes fall below their personal tax allowance level.

Rather than suffering the normal 20 per cent tax deduction at source on savings, they could register to be paid interest at the before-tax rate, offering some relief to lower returns. Rates on some savings accounts have more than halved in recent months following base rate cuts totalling 3 percentage points.

Individuals are entitled to receive savings interest gross where their total income is within their tax-free personal allowance: £9,030 for those aged 65-74; £9,180 for those 75+; or £6,035 for under-65s.

Pensioners and non-working spouses of higher earners could be among those qualifying. Mike Warburton, senior tax partner at Grant Thornton, said: “It isn’t just people with small savings balances who are affected, some could have hundreds of thousands of pounds on deposit.”

To be paid gross, individuals need to complete an R85 form at their bank or building society. Many thousands of eligible savers already pay unnecessary tax on interest because they have not registered.

Individuals who have paid too much tax can reclaim up to six years’ worth from HM Revenue & Customs. There is £250m that up to 3m individuals could reclaim, according to HMRC.

With personal allowances due to rise to about £9,500 for older people from April, yet more pensioners are set to be eligible to receive interest gross.

http://www.ft.com/cms/s/0/475b8984-c87f-11dd-b86f-000077b07658.htm

Business Financial Services

Low rates put savers into tax free band