Meg Saksida considers the operation and practical implications of the income tax starting rate band for savings.
The starting (savings) rate band for interest income is one of the most difficult concepts for taxation students (and some tax qualified professionals!) to understand, so it is not a surprise that most taxpayers without detailed technical tax teaching, do not understand it either.
If you take a quick ‘Google’, you will see that it is applied to the first £5,000 of savings income; but this overly simplifies the benefit.
Taxation of savings income
When looking at how non-savings income is taxed, there are simply three rates: the basic rate at 20%, the higher rate at 40% and the additional rate at 45%.
The taxpayer’s savings, however, are taxed at four rates. In addition to the rates detailed above, they
