The 10% starting rate for savings income

There is still a 10% starting rate of tax for savings – but it is difficult to get. The starting rate of 10% only applies if your non-dividend ‘savings income’ falls within  the starting rate band (£0 to £2,710 in 2012-13) when taking into account all your non-savings income and available personal allowances. This sounds very complicated and it is!

In practice in means that people under 65 will only be able to access the savings starting rate of 10% if their ‘non-savings income’ is no more than £10,815 (£8,105 personal allowance plus £2,710 starting rate band (in 2012-13)).

Low income pensioners are aged 65 -74, with pension income (strictly ‘non-savings income’) under £13,210 (in 2012-13) may also be able to access the 10% band. For pensioners aged 75 or over the limit is £13,370 (in 2012/13).

To the extent that your total income is greater than the limits stated above, the savings rate will only apply to the savings income that fall within the starting rate band.

For example, if person under 65 receives total non-savings income of £10,715 and savings income of £500, then the 10% starting rate will only apply to the first £100 of savings.  The remaining £400 of savings will be taxed at the basic rate of tax.

For an illustration showing how the 10% rate works, see: savings illustration 2012-13

For more information see the section on Pensioners. There is also guidance on the HMRC website at http://www.hmrc.gov.uk/tdsi/ten-per-cent-guidance.htm