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At last
That explains the situation.
I did originally think it was 10% in my example, and it was the note in the tables that made me query the treatment.
Thanks.
Some clearer explanation of the 10% band
The ICAEW Tax Faculty have issued their Budget Report which shows how the 10% savings band operates.
ITA 2007 sets out the order in which sources of income are taxed: firstly non savings income, secondly savings income, then dividends. The example given is of a 75 year old single pensioner with a state pension of £4540, other pension £6000, gross interest £1000, gross dividend £100. So non-savings income is 4540 + 6000 - PA 9180 = £1360.
So the non-savings income of £1360 is taxed at 20%. As far as the savings income is concerned, £1360 of the £2320 10% band has been used up by the non-savings income. That leaves £960 of the £1000 taxed at 10% and the remaining £40 at 20%. The dividend income is obviously taxed at 10%.
Using this basis seems to lead to the savings income being taxed at 10% in Mister E's example.
The example doesn't cover the situation I gave where the taxable income consists of savings income and the apparent loss of income if this is between £2321 and £2610..
What about dividends
What about the usual case of directors taking the PA as salary plus Divs who have some bank interest as well?
For example
2008/09 Salary £5,435, Divs £20,000, plus £2,000 bank interest
is the position -
Salary covered by PA.
Divs at 10% (as usual)
Savings - 10% or 20%?
Is it 20% because overall the total taxable income exceeds the new 10% band (£2,320)
Or is it 10% as divs are always the final slice of income to be taxed so the bank interest falls into the £2,320 new 10% band.
Looking at the tax tables here and the explanation https://www.accountingweb.co.uk/cgi-bin/item.cgi?id=180711&d=1032&h=1058&f=1026 it appears it's 20% as overall the income is above PA + £2320.
Agreed?
How many can actually get the 10% rate?
Laurence, I won't be the first to contradict you. Given the conflicting statements I'll take your word for it until HMG makes it clear.
A point noted in the tax tables but not commented on in this article is that earned income is the first slice when determining the tax rate. So anyone earning more than their personal allowance plus £2320, i.e. over £8755, pays 20% on their savings. £8755 is less than the minimum wage for a full time job. So who can actually get the 10% rate? Perhaps it is aimed at pensioners, as the new Age Allowances of £9030 and £9180 will make it more likely that they will have some room left for the 10% band to apply. But again, how many pensioners with income under £11350 or £11500 have any saving to speak of?
It's a virtual tax rate, retained simply so Mr D can say he has kept it.
Savings income 10% band
If my reading of the budget details is correct, then if your taxable savings income is not greater than £2320, your tax rate is 10%. If your taxable savings income exceeds £2320 then the normal rates apply. So if the gross was £2320 then the net income would be £2088. If the gross was £2321 then the net income would be £1856-80. The net would continue to be below £2088 until the gross exceeded £2610.
So if your taxable savings income is between £2321 and £2610, you must be tempted just to go and spend some of hte capital.
I've made this comment elsewhere on this site and no-one has yet come back to contradict me.