Tax on your savings in bank and building society accounts

This is confirmed by the entry ‘net interest’ on your bank or building society statement. Your bank or building society should send you a ‘Certificate of Tax Deducted’ or a statement containing this information after the end of each tax year (5 April). If you need one but haven’t received one, just ask. You can also often get the figures you need from your passbook or from your statements of account.

If you have a joint account with a husband, wife or civil partner you should declare half of the income as yours. The second half should count towards their income. If the entry shows only ‘gross interest’ and not ‘net interest’, then no tax has been deducted. To be in this position you normally have to be a non-tax payer on low income and registered to receive interest gross.

If you’re a higher rate taxpayer at 40% or an additional rate taxpayer at 45%, you’ll owe tax on the difference after the 20%. However, if you have a low income you may be able to claim tax back. Your savings income is added to your other income and taxed after your tax-free allowances – for example your Personal Allowance, have been taken into account. The rates applicable for the 2013/2014 tax year are as follows:

• taxable savings income that falls within the £2,790 starting rate for savings Income Tax band is taxed at 10 per cent – but only if the rate band has not been used up by other income, as savings income is taxed last.
• Taxable savings income (included with any other income) that rises above the £2,790 starting rate for savings Income Tax band, but falls within the £32,010 basic rate band, is taxed at 20 per cent.
• Taxable savings income (included with any other income) that rises above the £32,010 Income Tax band, but falls within the £150,000 higher rate band, is taxed at 40 per cent.
• Taxable savings income (included with any other income) that rises above the £150,000 Income Tax band is taxed at 45 per cent
• if your taxable savings income falls on both sides of a tax band, the relevant amounts are taxed at the rates for each tax band

If there is a significant change to your savings or income, whatever your current Income Tax band, and you don’t normally complete a tax return, you must contact HMRC right away so that they can work out whether you need to pay extra or less tax. By contacting HMRC early on you can:

• prevent a build up of tax owed if your income takes you into a higher band
• avoid paying too much tax if your income has fallen below certain limits.

HMRC will either ask you to complete a return, or, if you’re employed or receiving a pension, may arrange to collect any extra tax due through PAYE.

If you complete a Self-Assessment tax return you’ll need to show, for your combined bank/building society savings:

• the amount of interest you received after tax was deducted – the ‘net amount’
• the amount of tax deducted ‘at source’ – before you received the payment
• the sum of the two above – the ‘gross amount’ (before tax).
• There’s also a separate box to complete for any interest you received without tax deducted.