CH3 - The Taxation of Interest

Question 1

Taxable interest includes interest received on:

Answer 1

• bank and building society accounts
• National Savings and Investments (NS&I) accounts (this is different to NS&I Certificates, which is exempt)
• gilts (government stocks)

This interest is received gross.

Question 2

Interest is taxed after non-savings income and is taxed at the savings rates of ?

Answer 2

0%, 20%, 40% and 45%.

Question 3

Savings Allowance

The savings nil rate applies to interest income ?

Answer 3

within the savings allowance.

Question 4

Savings Allowance

The amount of the savings allowance depends on the level of taxable income: ?

Answer 4

• No higher rate income - £1,000
• Higher rate income but no additional rate income - £500
• Additional rate income - £Nil

Income within the savings allowance utilises the basic and/or higher rate tax band as normal.

Question 5

Starting Rate Band

Where taxable non-savings income is less than £5,000, ?

Answer 5

interest income is taxed at the starting rate of 0% until taxable income reaches £5,000.

The starting rate band utilises the first £5,000 of basic rate band.

Interest within the starting rate band does not utilise the savings allowance. The savings nil rate can apply in addition to the starting rate.