3. 10% savings rate

If your taxable income is between £10,000 and £13,540 (not including savings interest), you may only have to pay 10% on your interest, instead of the usual 20%.

The 10% savings rate is ending on 6 April 2015. This means more people will be able to get their savings interest tax-free.

You’ll have to claim a refund from HM Revenue and Customs (HMRC) as tax will have been deducted at 20% by your bank or building society.

How much you can claim back depends on your age and what type of income you have.

Work out if you can claim tax back

  1. Find your savings threshold - this is your personal allowance plus £2,880.

  2. Add up your taxable income - not including any interest you received from your savings.

  3. Taxable income above your Personal Allowance but below your savings rate threshold is taxed in different ways - savings interest will be taxed at 10% and income from anything else, eg earnings will be taxed at 20%.

Example 1

You’re 62 and your income is £12,000. This is made up of £10,000 earnings from employment and £2,000 interest on your savings.

Your tax-free Personal Allowance is £10,000, so you won’t pay tax on your £10,000 employment income.

Your savings rate threshold is £12,880.

You can reclaim tax on the £2,000 you earned from savings as you’re under your savings threshold. You’ll get back half the tax your bank’s automatically taken from you (as you’ll have been taxed at 20% instead of 10%), which is £200.

Working out your tax may be more complex if you have a mixture of earnings and interest over your Personal Allowance.

Example 2

You’re 70 and your income is £14,000. This is made up of £11,000 from your pension and £3,000 interest on your savings.

Your tax-free Personal Allowance is £10,500 because you were born before 6 April 1948.

You won’t pay tax on the first £10,500 of your pension but you’ll need to pay 20% on the remaining £500 as it’s over your Personal Allowance.

Your savings threshold is £13,380.

As £11,000 has been taken by your pension, you still have £2,380 left before you reach the threshold.

You only need to pay 10% tax on £2,380 of your savings interest.

You pay 20% tax on the £620 interest over your threshold.

Claim a refund

Fill in form R40 and send to HMRC.

It normally takes 6 weeks to get the tax back.

HMRC
Leicester & Northants (Claims)
Saxon House
1 Causeway Lane
Leicester
LE1 4AA

You must reclaim your tax within 4 years of the end of the relevant tax year