Millions of pensioners could be in line for a tax refund this winter after overpaying tax on their savings.
HM Revenue & Customs are contacting some 3.4 million households as part of its new TaxBack campaign to check whether they have overpaid. The overpayment comes about because tax is automatically deducted at 20% on savings, while those on low incomes are only required to pay at 10%.
A Treasury spokesman said: ‘We know times are tough for many pensioners, and we don’t want anyone paying tax they don’t need to. If you think you might have been overpaying tax on your savings, check the figures, and make a claim if you’re eligible.’
10% tax band retained for savings income
Most people who earn interest on their savings pay tax at 20%, just as they do on their non-savings income. However, those whose taxable earnings are low (below £2,320) should only be taxed at 10% on some of their savings income, and are eligible to claim a refund from HMRC.
Pensioners urged to claim
While the 10% tax band applies to savers of all ages, it is particularly relevant to those aged over 65, who receive higher tax-free allowances and may therefore have low taxable earnings (from their pension, for example). At 65, your personal allowance goes up, from £6,475 to £9,490 (2009-10), while at 75 it rises again to £9,640. The ‘10% tax band’ for savings income applies to income above these limits. You need to take away any taxable non-savings income first, then apply what is left of the 10% band. If your pension income is less than £10,000 you could well be entitled to a tax rebate on your savings income.
If you are a non-taxpayer, you can use an R85 form to stop tax being deducted at source.
If you are eligible to claim back overpaid tax, you can do this for previous years as well as 2008-9. You can go back five years, to the tax year 2003-4, for which claims must be made by 31 January 2010.
Which? Money when you need it
You can follow @WhichMoney on Twitter to keep up-to-date with our Best Rates and Recommended Provider product and service reviews.
Sign up for the latest money news, best rates and recommended providers in your newsletter every Friday.
Or for money-saving tips, and news of how what’s going on in the world of finance affects you, join Melanie Dowding and James Daley for the Which? Money weekly money podcast
For daily consumer news, subscribe to the Which? news RSS feed here. And to find out how we work for you on money issues, visit our personal finance campaigns pages.