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The Taxation of Interest (Interest kept separate from non-savings income…
The Taxation of Interest
Interest kept separate from non-savings income in the proforma
UK banks from 2016/17 are paying interest gross with no tax deducted at source
NS & I accounts and gilts are also received as gross
Taxation of Interest
Four possible rates of tax:
ITA 2007 s.16
20%
40%
0%
45%
Saving Allowance
Saving NIL rate(0%)
ITA 2007 s.12A
Higher Rate taxpayer gets £500 at 0% tax
Additional Rate taxpayer get £NIL (ITA 2007 s.12B)
Basic Rate taxpayer gets £1000 at 0% tax
Note that the personal allowance must be off-set first before calculating the tax liability
The 0% 'Starting Rate'
Taxable non-savings income less than £5000
Taxable non-savings income taxed at 20%
the difference between the taxable non-savings income and £500 is taxed at 0%
Example:
If personal allowance took away all of the non-savings income and there was still interest taxable, the first £5000 will be taxed at 0%
Example:
If there is non-saving income left after the personal allowance, non-savings income is deducted off the interest of £5000, non-savings income taxed at 20%, the remaider up to £5000 of interest is taxed at 0%