What is the tax free savings income band?
You may have heard about the new tax free savings income band – in that the first £5,000 of interest is tax free from April 2015. Well it is and it isn’t… sadly it is another example of something that is true, but not true for many…. or another example of smoke and mirrors exemplified in Budget announcements.
With effect from 6th April 2015 the 10% starting rate of tax for savings income was replaced by a new 0% rate and the band increased from £2,880 to £5,000. This means that, in 2015/16, those with a total income of less than £15,600 (£10,600 personal allowance for 2015/16 plus the new 0% starting rate band) will pay no tax on their savings (the total income figure is £15,660 for those born before 6th April 1938).
Here is the smoke and mirror bit…
Non-savings income (i.e. earned income and pension income) is always taxed before savings income so the new tax -free £5,000 starting rate band can only apply to those earning less than the total of their personal allowance and the 0% starting rate band. In short, if you have taxable income under £15,000 from all sources, then you gain this allowance, but not if you have earned income – which could come from a pension.