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The savings `starter rate'

Karen Campbell of Grant Thornton
16/ 6/2008

Q I THOUGHT that the 10 per cent rate of income tax had been abolished from this year, but I'm told that this isn't necessarily the case. Is this true?

A IT is true that the 10 per cent rate has been abolished for most taxable income (up to the basic rate limit of £36,000) but there is a special 10 per cent starting rate for `savings income', such as bank and building society interest.

The rate at which savings income is taxed will depend upon the level of the individual's earnings.

If these are less than the personal allowance plus £2,320, then some or all of the savings income will be taxable at 10 per cent.

Those with a mixture of earnings and savings income will have to work out if they are entitled to have any of the savings income taxed at 10 per cent.

Any savings income above £2,320 will be taxed at 20 per cent.

If the only taxable income is savings income, then the first £2,320 of income above the personal allowance will be taxed at 10 per cent.

Any savings income above £2,320 will still be taxed at 20 per cent.

HM Revenue & Customs website www.hmrc.gov.uk includes examples of when the 10 per cent applies.