Savers urged to check their tax status as low interest rates could mean less tax

News - Tax

Written by Ray Clancy

Wednesday, 03 February 2010 09:22

Plummeting savings rates is generally bad news for savers but some could actually benefit if it pushes them under the interest paid tax zone, it is claimed.
More people should qualify for tax free status on savings interest and that could help cushion the impact of rate cuts, according to Andrew Hagger of Moneynet.co.uk.

He is urging savers, especially older ones who rely on interest from their savings to top up their pension, to take a fresh look at their savings accounts and see if falling interest rates may tip them back below their annual tax free threshold.

Interest rates have fallen sharply over the last 18 months and will have undoubtedly caused financial hardship to those who depend on their savings income, sometimes just to make ends meet, he points out.

‘Not only have these record low rates made ISA benefits barely worthwhile, and almost impossible to find a savings account that keeps pace with inflation, but it could also have an impact on the tax status of savings interest for some people,’ explained Hagger.

‘Because the rate cuts have been so drastic, it could mean that the total annual income for some consumers has now fallen below the tax free threshold which could entitle them to receive their interest income without tax deducted,’ he said.

‘Savings income is a vital lifeline for some people, so qualifying for interest free of tax will at least go some way to offsetting the sharp fall in interest rates,’ Hagger added.

He advises those who think they may qualify not to pay tax on their interest to look at the HMRC help sheet which helps you work out step by step to see if you are eligible that is available on its website or call their helpline: 0845 980 0645.

‘Many people may not be aware of this situation, so if you have elderly friends or relatives on a low income, it’s worth helping them to check this out as it could possibly save them a few hundred pounds per year,’ said Hagger.

He added that if you find that you qualify for interest being paid without deduction of tax, you’ll need to complete a form R85 and hand it in to your savings provider so that they can implement the change on your account.