Over 2.5 million individuals will pay up to 150 pounds less tax as the Chancellor announced today that the 10p starting rate of income tax will be extended to savings income from April 1999. The change will particularly benefit pensioners where up to 1.5 million will gain an average of 65 pounds.
The new rate will also apply for capital gains tax from April 2000.
The 10p rate of income tax was announced by the Chancellor in his last Budget. It came into effect from 6 April 1999. It applies to the first 1,500 pounds of an individual’s non-savings income, and has improved work incentives by allowing individuals to keep more of what they earn.
To give further help and encouragement to savers, the 10p rate will be extended to savings income such as bank and building society interest, with effect from 6 April 1999. As a result, whether an individual has income from earnings, a pension or savings they will enjoy the benefit of the 10p rate on the first 1,500 pounds of their income. Savings income above the limit for the starting rate but within the basic rate band will continue to be taxed at 20 per cent.
Corresponding changes will be made to the capital gains tax from April 2000. (The existing structure for taxing dividends at 10 per cent and 32.5 per cent will remain unchanged.)
NOTES FOR EDITORS
1. The 10p rate of income tax was announced by the Chancellor in his last Budget. The relevant legislation is in sections 22 and 23 of Finance Act 1999. Finance Bill 2000 will include provisions which apply the 10p rate to individuals’ savings income from April 1999 and to capital gains from April 2000. The rate at which tax is deducted from bank and building society interest will remain at 20 per cent.
2. For individuals within Self Assessment, or those who make annual claims to the Inland Revenue for a repayment of tax, their savings income will be taxed at the 10p rate if appropriate when calculating their next tax bill or a final repayment. Some individuals who have had untaxed interest taken into account in their PAYE code may need their code adjusted.
3. Taxpayers who think they may benefit from the 10p rate on their savings income, but are not within Self Assessment or already making annual claims, may now be able to make an annual claim for repayment of tax. An Inland Revenue helpline is available to advise individuals about what they need to do. The helpline number is 0845 307 5555. (Calls are charged at local rates.)
4. Individuals who have already received a final repayment of tax for the current tax year (starting 6 April 1999) who think they may benefit from the 10p rate on their savings income should also ring the same Helpline number.
5. For individuals, capital gains tax is calculated by treating the gains, in excess of the annual exempt amount, as though they were the top slice of income and taxing them at the appropriate marginal rate, which will include the 10p rate from April 2000.