For 2014/15 the first £2,880 of taxable savings income is taxed at a special rate of 10%. Thereafter, savings income is taxed at 20%. The special savings rate is not available if the taxpayer has taxable non-savings income of more than £2,880.
By moving interest-earning accounts between spouses and partners it is possible to take advantage of the special rate for savings and to save tax on savings income.
Example:
Alfred and Freda are both retired. Alfred has a pension of £20,000 a year. He has also accumulated savings over the years which generate interest of £2,500 a year.
Freda has a pension of £10,500 a year.
Both are entitled to the age allowance of £10,500 for 2014/15.
By transferring the savings into Freda’s name, they will be able to benefit from the savings rate of 10%, paying tax of £250 on the interest rather than tax of £500 (£2,500 @ 20%).
You might also be interested in