Personal Tax

Taxation of savings income

Produced by Tolley
  • 19 Oct 2021 22:38

The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Taxation of savings income
  • When is savings income taxable?
  • Meaning of savings income
  • UK savings income and overseas savings income taxed on the arising basis
  • Starting rate for savings
  • Savings nil rate
  • Tax devolution and uncoupling of the UK savings rates
  • UK savings income received by non-residents
  • Temporary non-residence
  • Overseas savings income taxed on the remittance basis

Taxation of savings income

Savings income includes interest, profits from deeply discounted securities, accrued income profits and chargeable event gains.

Savings income is taxed after non-savings income but before dividend income. There are four possible rates of tax applying to savings income from 2015/16 onwards: 0%; 20%; 40%; or 45%.

Note that the Scottish and Welsh income tax rates only apply to the non-savings non-dividend income (commonly referred to in practice as non-savings income) of Scottish or Welsh taxpayers. As far as the savings income of Scottish and Welsh taxpayers is concerned, it is the UK tax bands and rates that apply. For the definition of Scottish and Welsh taxpayers, see the Proforma income tax calculation guidance note.

When is savings income taxable?

Whether savings income is taxable in the UK depends on the circumstances of the individual and whether the income is paid by a UK resident or non-resident payer.

An individual who is resident and domiciled or deemed domiciled in the UK is taxable on his worldwide income (and gains) in the tax year in which these are received and should declare these on his tax return. See the Residence ― overview and Domicile guidance notes for detail on these terms.

Individuals who are not domiciled or deemed domiciled in the UK are eligible to access the remittance basis of assessment. The effect of the remittance basis is that the individual is only taxable on his foreign income to the extent that these are remitted (brought) to the UK. The remittance basis only affects the taxation of foreign income; UK income (such as interest paid by a UK bank) remains taxable in the UK in the year it is received. The remittance basis is discussed further in the Remittance basis ― overview and When are income and gains remitted? guidance notes.

If an individual who is eligible to access the remittance basis chooses not to do so, he is taxable on his worldwide income in the year it is received.

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