Saving for non-taxpayers
May 2009
If you're a non-taxpayer then it stands to reason that you shouldn't have to pay any tax on your savings.
If you're a non-taxpayer then it stands to reason that you shouldn't have to pay any tax on your savings.
It may be that you do not have any earnings on which to pay tax if you do not work or are not a UK resident. You are a non-taxpayer if your income doesn’t exceed your annual tax-free personal allowance (2009/10), currently £6,475 rising to £9,490* if you are aged 65-74 and £9,640* if you are aged 75 or over.
*These allowances reduce where the income is above the income limit – by £1 for every £2 of income above the limit. However, they will never be less than the basic Personal Allowance or minimum amount of Married Couple’s Allowance.
Savings companies are required to deduct tax at a rate of 20% from your interest. If you wish however, you can elect to receive gross interest (ie interest without tax deducted) as part of HM Revenue & Customs’ Tax Deduction Scheme for Interest (TDSI). You will need to complete Tax Form R85 - which you will be able to pick up from your bank or building society or other savings provider.
Note: The interest you receive could turn you into a taxpayer and it is your responsibility to pay the tax.
National Savings and Investments (NS&I) was excluded from the legislation when the TDSI was introduced by Government because it was seen as offering traditional savings products that were mainly held by those not liable to pay tax. As such, any non-taxpaying customers that have any NS&I investments that pay interest net of tax should instead claim the tax back from HM Revenue & Customs.
Keep an eye on your savings income. Once it rises above your annual tax-free limit, you must tell your bank or building society. If you don't, they'll continue to pay interest without deducting the tax and you will have to pay this back to HM Revenue & Customs.
Where there are joint accounts and one party is a non-taxpayer, speak to your independent financial adviser, or savings account provider, to maximise your tax benefits. For more information, and to download forms, visit www.hmrc.gov.uk
