Attention Pensioners – You May Be Due a Tax Rebate.

Confusion over the 10% rate could means that many of the country’s pensioners have paid too much tax – either because they were overcharged or did not have to pay anything in the first place. It is estimated that HMRC owes in the region of £200 million.

Rebates could be from a few pounds up to several hundred for those who took out five-year fixed bonds, and those affected are now being encouraged to take advantage as the 10% tax rate was scrapped in the 2014 budget. The treasury said that this was because most people entitled to it were not claiming it back.

With banks offering little advice and none of the largest having information on their websites, few were even aware that it existed.

10P Savings Tax and You

Typically, 20% tax will be deducted off of any interest paid on your savings, and only those on very low incomes can receive their interest before the deduction is made – your bank or building society will deduct it at source. In order to qualify for tax-free personal savings, your annual taxable earnings must be under the tax-free personal allowance.

The limit is £10,000 for the under-65s for the 2013-14 tax year, £10,500 for the over-65s and £10,660 for the over 75s. If you feel you qualify for tax free savings, ask your bank or building society for an R85 form. A large number of people who earn more than £10,500, who are receiving interest on their savings, will qualify for a 10% tax rate on those saving

To work out whether you qualify, first, add up all your taxable income except savings interest. If it is below £10,815 (for the under-65s), £13,210 (over-65s) or £13,370 (over-75s), you can claim back some of the tax you paid on your savings.

Entitlement

If you use self-assessment for tax purposes, HMRC will automatically send you a rebate – similarly for PAYE.

Any individual may earn up to £2,710 of interest at the 10% rate of tax which means you may claim a maximum of £271. This amount will be reduced in proportion to how much greater your income is compared to the personal allowance.

A 66-year-old with an income of £12,000 from a pension and an additional £4,000 in interest earned from his or her savings will have had an £800 tax deduction. The maximum income that individual may have in order to qualify for the 10% tax band is £13,210. This means that the £13,210, minus the stated £12,000 income, will leave £1,210 to pay interest at the 10% band.

This leaves £2,790 of savings interest which will be subject to the 20% tax rate. The individual can reclaim 10% tax on £1,210 interest, which will be £121. Those with non-savings income below the personal allowance will be able to claim back much more.

You will need to reclaim any tax you have overpaid directly from HMRC, and you are able to claim back up to four years of overpaid tax. You will need to apply by April 5th every year. At the time of writing the maximum and deadline for each year is: