0% rate will add value to the savings of those on modest incomes

The Low Incomes Tax Reform Group (LITRG) responded to today’s announcement welcoming the changes to the starting rate of tax for savings. In his self-styled saver’s Budget the Chancellor confirmed that from 6 April 2015 the starting rate of tax for savings income (such as bank or building society interest) will be reduced from 10 per cent to 0 per cent and the maximum amount of taxable savings income that can be eligible for this starting rate will be increased from £2,880 to £5,000. The Group believe this is great news for prudent savers on modest incomes.

This 0% band, when added to the increased tax-free personal allowance, means that most savers in 2015/16 will not be liable for tax on any interest they receive if their total taxable income is less than £15,500 (this figure may be higher for people born before 6 April 1938 or those entitled to Married Couple's Allowance or Blind Person's Allowance). In addition, tax-advantaged accounts such as ISAs can still be held.

Commenting on the announcement, LITRG Chairman Anthony Thomas said:

“This relief should help add value to people’s money, particularly for those nearing the end of their working life, thus helping both pensioners and those entering retirement.

“To answer the criticism that the starting rate on savings is administratively so complex that few people claim it, savers who do not expect to be liable to tax on any of their savings income in the tax year will be able to complete a R85 form – the form used to register with a bank or building society for interest to be paid gross (i.e. without 20% tax deducted at source).

‘’Currently an R85 can only be completed by a saver whose total taxable income for the tax year is below their tax-free personal allowance.  Without this change, the taxpayer would have to reclaim the tax automatically deducted from their bank interest.

‘’This is generally good news, tempered by the consideration that people will only complete R85 if they know about it and understand that they are eligible.  As LITRG have noted in a report published last year2, this is often not the case. The onus is now on banks and building societies and HMRC to ensure that the R85 system is better publicised – now more than ever if today’s changes are going to have the desired impact on savers’ pockets.’’



Notes to editors:


1.       A copy of LITRG’s report on Banks, building societies, HMRC and their non-taxpaying customers – A plea for better service can be accessed here.


2.       The Low Incomes Tax Reform Group (LITRG)


LITRG is an initiative of the Chartered Institute of Taxation to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.


3.       The Chartered Institute of Taxation (CIOT)


The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.


The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.


The CIOT’s 17,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.