Budget 2014: 10% tax rate on savings income abolished

The government has announced at Budget 2014 that from April 2015 it is abolishing the 10 per cent ‘starting-rate’ of tax for savings income.

From April 2015 the 10 per cent ‘starting-rate’ of tax for savings income will be replaced with a new 0 per cent rate.

Today’s Budget (19 March) also increased the amount of savings income that the new 0 per cent rate applies to, from £2,880 to £5,000. This means anyone with a total income of less than £15,500 will not pay any tax on their savings.

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Nearly everyone is entitled to a personal allowance, which allows you to receive a certain amount of income that isn’t taxed.

From April 2015, the basic tax-free personal allowance will be £10,500. Non-savings income is always taxed before savings income.

So the tax-free £5,000 savings band will only apply if you earn less than £15,500 a year, or if some of your savings income falls into the £5000 that sits on top of the personal allowance.