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Deprecated: mysql_connect(): The mysql extension is deprecated and will be removed in the future: use mysqli or PDO instead in /home/sites/westwaters.co.uk/public_html/framework/lib/sddb.class.php on line 166 Deprecated: mysql_connect(): The mysql extension is deprecated and will be removed in the future: use mysqli or PDO instead in /home/sites/westwaters.co.uk/public_html/framework/lib/sddb.class.php on line 166We now have details of how the PSA will work and its interaction, if any, with the 0% starting rate.
The PSA will first take effect for the 2016/17 tax year and will apply to savings income (such as interest) paid to individuals. There are no changes to the definition of savings income which is defined in s18 ITA 2007.
The draft legislation introduces a new 0% rate (the 'savings nil rate'). This new nil rate will apply to savings income within an individual’s PSA. An individual's PSA in a tax year will be £1,000, except where:
For this purpose, higher rate income is income on which tax is charged at the higher or dividend upper rate, or would be but for the operation of this new savings nil rate or the dividend nil rate (which will also be available from 6 April 2016). Additional rate income is income on which tax is charged at the additional or dividend additional rate, or would be but for the dividend nil rate.
Income that is within an individual's PSA will still count towards their basic or higher rate limits - and may therefore affect the level of PSA they are entitled to, and the rate of tax that is due on any savings income they receive in excess of this allowance.
Example
Edna has a salary of £42,500 and savings income of £1,000 in 2016/17. Her total income is therefore £43,500. The total of her personal allowance and basic rate band comes to £43,000. She thus has some income which would be taxed at higher rate were it not for the operation of the new savings nil rate. She therefore is only entitled to a PSA of £500. So £500 will be taxed at 0% and £500 will be taxed at higher rate.
Alongside the introduction of the PSA, banks, building societies and NS&I will cease to deduct tax from account interest they pay to customers.
For more information on this tax issue or indeed any other then please do not hesitate in contacting us today.
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