Key Personal Tax Points : The Savings Tax Rate

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KEY PERSONAL TAX POINTS

• The savings tax rate for 2015/16 is 0%.
• Until 5 April 2016, banks and building societies will pay interest net of tax.
• PAYE codes for the marriage allowance will have new suffixes “N” and “M”.
• Individual savings accounts have become more flexible.

Savings rate of income tax
The tax rules for savings income have become something of a nightmare.
In an age when taxpayers and their advisers clamour for simplicity, these rules seem to be ever more complex with tax rates, exemptions, reliefs, and incentives thrown in every year with apparent gay abandon.
While interest rates remain low, those with little savings capital could almost be forgiven for giving up and hoping for the best.
Few taxpayers derive much
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Combined with the increased personal allowance to £10,600, for many people on incomes below £15,600, savings income will be free of tax.
But if they have a lot of non-savings income, the administrative problems and complexity stay with us.
For the tax year 2015/16, banks and building societies will continue to pay interest net of basic rate tax to individuals unless the person completes a form R85 for each institution where they have savings.
This form can be used only if the individual’s income is less than his personal allowance. If it is just above it, tax is deducted and must then be reclaimed either by completing a form R40 or through the self assessment tax return.

Future changes
April 2016 will bring two further big changes for savings income:
• Banks and building societies will begin to pay all interest gross. The 20% income tax deduction will disappear and with it form R85. After that, HMRC will include any taxable savings income in the PAYE code and collect the tax through the PAYE system or self assessment.
• A new personal savings allowance will be introduced. Basic rate taxpayers will receive up to £1,000 of savings income tax free, while higher rate taxpayers can receive up to £500 tax free. Additional rate taxpayers will have no tax-free savings allowance.

Marriage allowance
Since 6 April 2015, individuals have been able to transfer part of their personal allowance to
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