Income Tax on Savings Interest Income

In the UK, the taxation of savings interest income is relatively straightforward. The key points are:

Tax is generally payable at the same rate as on marginal earned income, save that there is a Starting Rate for savings income that can apply where an individual’s taxable non-savings income does not exceed the starting rate limit. As the starting rate threshold is modest (£2,880 in 2014-15 and £5,000 in 2015-16), this applies to those whose total income does not exceed £12,880 in 2014-15 or £15,600 in 2015-16.
Unlike earned income, income from savings interest does not attract National Insurance
Banks in the UK generally deduct basic rate tax (currently 20%) on the interest income they pay to UK residents, so
- Those whose income is below the tax threshold, can apply to their bank to be paid gross by completing form HMRC R85 an submitting it to their bank (a separate form is required for each account)
- Higher/additional rate taxpayers will have to pay the difference between the basic rate tax deducted and their marginal tax rate

UK Tax Rates on Interest

	Dividend Tax Rate	Thresholds in 2014-15	Thresholds in 2015-16
Starting rate limit (savings income)	0% (was 10% in 2014-15)	£2,880	£5,000
Basic Rate	10%	Up to £31,865	Up to £31,765
Higher Rate	32.5%	£31,865 to £150,000	£31,765 to £150,000
Additional Rate	37.5%	£150,000+	£150,000+

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