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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: tax year 2015-16

Changes to starting rate for savings

Where an individual’s non-savings income is less than the starting rate for savings limit, the savings income will be taxable at the 0% starting rate for savings up to the limit. From 6 April 2015 the starting rate for savings limit is the individual’s personal allowances plus the starting rate band of £5,000.

Where an individual’s non-savings income exceeds the starting rate for savings limit, the starting rate for savings is not available.

Bank and building society interest paid to individuals normally has basic rate income tax taken off before it is paid.

Individuals can

  • Register to have their interest paid without tax deducted (by completing form R85 and giving it to their bank or building society) if their total taxable income is less than

    • their personal allowances, see Example A

    or

    • their personal allowances and the starting rate band, see Example B
  • Claim a repayment if some of their savings income is taxable at the starting rate for savings, see Example C

Example A

In the tax year 2015-16, A has income of £6,000 from employment, and savings income in the form of building society interest of £3,000. The personal allowance for 2015-16 is £10,600.

Because A’s total taxable income of £9,000 is less than his personal allowances of £10,600, he can register his building society account so that his interest is paid without tax deducted.

Example B

In the tax year 2015-16, B has income of £11,000 from employment, and savings income in the form of building society interest of £3,000. The personal allowance for 2015-16 is £10,600.

Because B’s total taxable income of £14,000 is less than £15,600 (his personal allowances of £10,600 plus the starting rate band of £5,000), he can register his building society account so that his interest is paid without tax deducted.

Example C

In the tax year 2015-16, C has income of £13,000 from employment (from which £480 is deducted under PAYE by his employer), and savings income in the form of building society interest of £4,000 (from which £800 has been deducted). The personal allowance for 2015-16 is £10,600.

Because C’s total taxable income of £17,000 is more than £15,600 (his personal allowances of £10,600 plus the starting rate band of £5,000), he cannot register his building society account so that his interest is paid without tax deducted.

But he can claim a repayment because some of his savings income is taxable at the starting rate for savings:

Income    
     
Employment 13000  
Interest 4000  
Total taxable income 17000  
Less personal allowance (10600)  
Taxable 6400  
     
Tax    
2400 @ 20% 480 (Non-savings income (13000) less personal allowance (10600))
2600 @ 0%   (Starting rate band available (5000-2400)
1400 @ 20% 280  
Total tax due 760  
     
Tax deducted (1280) (480 from employment income and 800 from interest)
Repayment due 520