Savings and investment income: rates of tax on savings and investment income
Rates of tax
Particular provisions apply to the rates at which income tax is charged on ‘savings income’ and ‘dividend income’.
SAIM1090 explains the rules for determining what part of a person’s income these tax rates apply to.
For the purposes of the tax rates which apply to income, ‘savings income’ is defined in ITA07/S18 as:
- interest chargeable under ITTOIA05 Chapter 2 Part 4 (SAIM2000)
- profits from deeply discounted securities chargeable under ITTOIA05 Chapter 8 Part 4 (SAIM3000)
- income taxed under the Accrued Income Scheme (SAIM4000).
‘Savings income’ excludes ‘relevant foreign income’ charged on the ‘remittance basis’ (SAIM1140).
Savings income: the starting rate for savings
Savings income is taxable at the basic rate, except where it falls within the ‘starting rate limit for savings’ (for 2014-15 this amount is £2880 - ITA07/S12). Where it does so, income tax is charged at the ‘starting rate for savings, which is 10% (ITA07/S7).
There are changes to the starting rate for savings for 2015-16. Further details can be found at SAIM1112.
Savings income: basic rate tax is repayable
Basic rate tax paid on income chargeable at the starting rate for savings is repayable. ITA07/S17 allows for claims to be made outside of self-assessment.
Dividend income: the dividend rates
‘Dividend income’ is defined in ITA07/S19. It means dividends from UK resident companies, dividends from non-UK resident companies, stock dividends, loans to close company participators that are released or written off, and relevant foreign distributions (SAIM5000).
Dividend income which would otherwise be chargeable at the basic rate is chargeable at the dividend ordinary rate - ITA07/S13 (1). Dividend income that would otherwise be chargeable at the higher rate is chargeable at the dividend upper rate - ITA07/S13 (2). Dividend income which would otherwise be chargeable at the additional rate is chargeable at the dividend additional rate - ITA07/S13 (2A).
ITA07/S8 sets the dividend ordinary rate at 10%, the dividend upper rate at 32.5% and the dividend additional rate at 42.5%.
The 10% tax credit attached to UK dividend income [and certain foreign dividends] is, as its name states, a credit against the tax liability on the dividend and is not repayable.
Different rates apply to the savings and dividend income received by trustees. ITA07/S9 sets the trust rate at 50% and the dividend trust rate at 42.5%. See the Trust and Estates Manual TSEM3000+ for more details (SAIM20000).