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HMRC internal manual

Savings and Investment Manual

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HM Revenue & Customs
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Savings and investment income: tax on savings and investment income: example for tax year 2014-15

Example

In the tax year 2014-15 Jane has income of £43000 from employment, and savings income in the form of net building society interest of £800 and dividends of £9000. The personal allowance for 2014-15 is £10000 and the threshold for higher rate tax is £41865. The 10% starting rate for savings income limit is £2880.

The dividends are taxed as the highest part of income and are taxed partly at the dividend ordinary rate of 10% and partly at the dividend upper rate of 32.5%. The building society interest is the next highest part of total income and is taxed at the basic rate of 20%. The starting rate for savings does not apply because non-savings income fully occupies the first £2880 of chargeable income. Her tax liability in 2014-15 is as follows:

Income    
     
Employment 43000  
Interest 1000  
Dividends 10000 [9000+(9000 x 1/9)]
Less personal allowance (10000)  
Taxable 44000  
     
Tax    
33000 @ 20% 6600.00  
1000 @ 20% 200.00  
7865 @ 10% 786.50  
2135 @ 32.5% 693.87  
Total 8280.37  
Less tax at source on interest (200.00)  
Less tax credit (1000.00)  
Tax payable 7080.37