Tax charged on bank interest

[trevormax]

Hi,

This thread is aimed more at people who don't earn allot of money through work or pensions, but do get a bit of bank interest on their savings like pensioners, so might be useful to pass on to your grandparents maybe.

When you earn interest on any money you have in your bank account, by default it is taxed at 20% by the bank unless you tell them you are not liable to tax. The problem is, people like pensioners for instance who just have their state pension and maybe another small pension are not aware that they should not be paying this tax. Another problem also is that unless you send the relevant forms into the revenue, they will not pay this money back like they would if you had paid too much tax in work.

Example:

Dorris is 65 and in the 07/08 tax year gets a state pension of £4000 and a private pension of say £2500. She also has a nice bit of money in the bank and gets £1000 bank interest. Total of £7500, this is all of her income in the year. As the tax free allowance for her would be 7550 being over 65, her income is less than her allowance. But the bank by default would have charged her 20% on the £1000 meaning she has paid £200 tax which she is due back.

In order to get it back, all she would need to do is phone the revenue and ask for a form "R40 Tax paid on interest". She would have been sent a statement or certificates from her bank detailing how much interest and tax has been paid. She can if she likes just staple this toi the R40, fill in her income details, sign it and sent to the rev who will then send her any money owed to her. The R40 also works with other types of income so even if she didn't have bank interest but thinks she overpaid on a pension or a trust, she can use the R40 to claim that back too.

This will likely happen more from 08/09 onwards as people over 65 have had their tax allowances greatly increased. So if anyone has a grandparent with a little bit of money in the bank, could be worth letting them know about this.

[Weird Al Yankovic]

How much would Doris need to have in savings to get £1k of interest?

[MrShed]

Roughly £17k

[Weird Al Yankovic]

Hi Mr Shed!

Well, the OP said that it could help those old dears with 'a little bit of money in the bank!'

[trevormax]

You'd be surprised how much these old people have sitting in bank accounts, they stick a little in here and there and by the time they retire, they have quite a bit sometimes, often spread out over a few accounts.

The 1k was just an easy figure to use for the example though. The more common occurance would be getting a couple hundred pounds in interest and I'm sure Dorris would be happy to get that back.

[yourbank]

Originally Posted by trevormax

Hi,

This thread is aimed more at people who don't earn a lot of money through work or pensions, but do get a bit of bank interest on their savings like pensioners, so might be useful to pass on to your grandparents maybe.

When you earn interest on any money you have in your bank account, by default it is taxed at 20% by the bank unless you tell them you are not liable to tax. The problem is, people like pensioners for instance who just have their state pension and maybe another small pension are not aware that they should not be paying this tax. Another problem also is that unless you send the relevant forms into the revenue, they will not pay this money back like they would if you had paid too much tax in work.

Example:

Dorris is 65 and in the 07/08 tax year gets a state pension of £4000 and a private pension of say £2500. She also has a nice bit of money in the bank and gets £1000 bank interest. Total of £7500, this is all of her income in the year. As the tax free allowance for her would be 7550 being over 65, her income is less than her allowance. But the bank by default would have charged her 20% on the £1000 meaning she has paid £200 tax which she is due back.

In order to get it back, all she would need to do is phone the revenue and ask for a form "R40 Tax paid on interest". She would have been sent a statement or certificates from her bank detailing how much interest and tax has been paid. She can if she likes just staple this toi the R40, fill in her income details, sign it and sent to the rev who will then send her any money owed to her. The R40 also works with other types of income so even if she didn't have bank interest but thinks she overpaid on a pension or a trust, she can use the R40 to claim that back too.

This will likely happen more from 08/09 onwards as people over 65 have had their tax allowances greatly increased. So if anyone has a grandparent with a little bit of money in the bank, could be worth letting them know about this.

I actually repped you for this because I thought it was a good post.

Here to add weight to your post is some links to HMRC

HM Revenue & Customs:Bank and building society interest - Key information

R40 form
http://www.hmrc.gov.uk/forms/r40.pdf

Guidance notes for the form.
http://www.hmrc.gov.uk/forms/r40notes.pdf

[sallysas]

If you're claiming hb/ctb the council assume that you have £1 income for every £500 (or part) you have in savings so if you have an parent who spends money on repairs, central heating, new carpets etc and their savings drop by quite a bit as a result of this let the council know. For the rest of us they assume £1 income for every £250.

By the way you can apply for benefit if you have savings of less than £16000. The first £6000 is not counted as income at all. So savings of £6999 would result in income of £1 per week £7001 = income of £2 per week.