Personal Tax and the 10% Savings Rate- please help

fmundy

Hello,

I have my personal tax exam in a couple of weeks and the one thing I'm really struggling to get my head around are the rules for when to apply the Savings Allowance and tax the first £2,880 of savings income at 10%?

Can somebody please just give me some bullet points about when this should and should not be applied? The Osbourne books don't really explain it that well, or maybe i'm just having a mental block!

Thanks in advance for your help

Faye

SACKERS

The 10% savings rate applies when taxable savings income falls in the first £2,880 of income.
In an income tax computation you should analyse income as follows:
1.Non Savings( employment income, property income)
2.Savings (interest)
3.Dividends
The personal allowance is deducted and Income is taxed in that order.

If Taxable non savings income is less than £2,880 then any savings income will be taxed at the 10% starting rate.

Eg Tom has employment income of £10,500 and receives building society interest of £2,000 in 2014/15 his tax computation would be as follows:

Non Savings Savings Total
Employment income 10,500 10,500
BSI 2000 x 100/80 2,500 2,500
Total income 10,500 2,500 13,000
Personal allowance (10,000) (10,000)
Taxable income 500 2,500 3,000
Tax liability
Non savings 500 x 20% =100
Savings(2880-500)= 2380 x 10% = 238
2880
Savings(2500-2380) = 120 x 20% = 24
Total 3000 362

Hope this helps

SACKERS

The above computation as an image