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EnergyMillions of savers pay too much tax
Filed under: Savings & ISAs
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More than 3 million people paid double the amount of tax they owed on their savings in 2009/10, HM Revenue & Customs admitted this week.Its figures indicate that only 718,000 people applied for a rebate of at least some of the 20% tax automatically deducted from standard savings accounts, despite some 3.5 million being liable to pay just 10%.
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Pressure group Save our Savers, which is calling for the way savings are taxed to be changed, told the Daily Telegraph newspaper that many people are paying far more tax than they should on their savings.
"It is often pensioners, who have low incomes, but reasonable savings pots that are losing out," Save our Savers said.
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"Better-off savers are given generous credit terms to pay the tax they owe on their savings, whilst pensioners and others on low incomes have to overpay immediately, then have to fill out various forms to reclaim their own money."
Why is this happening?
Anyone whose total income (including earnings or pension, plus any interest paid on savings and investments) is less than the annual personal allowance - £8,105, rising to £10,500 for those aged 65-74 and £10,660 for over 75s - can complete an R85 form to avoid 20% tax being deducted from their savings interest.
However, things get more complicated if your income is slightly above these levels as the 20% tax is always automatically deducted.
Pensioners and other savers on low incomes who qualify to pay tax at just 10% on the next £2,560 of savings interest earned must therefore claim the extra tax back themselves.
And thousands of them lose out because they do not understand how to make the claim.
So how can I avoid paying too much tax on my savings?
The best way to avoid tax on your savings is to maximise your ISA allowance. If you have cash in standard savings accounts, though, the first thing to check is whether you can have interest paid gross on your savings.
If not, and you can claim back the extra 10%, you must either complete a self-assessment form or an R40 form that you can find at your bank.
You will have to wait a while for the rebate to come through, but at least this way you will only pay the tax you owe - not more.
10 things we hate about our banks
- 1. PPI<p> More than 46,000 of 106,000 the complaints received by the FOS in the second half of last year related to payment protection insurance (PPI). And the organisation is expecting to receive a record 165,000 PPI complaints in 2012/2013.</p> <p> The huge numbers are due to the PPI mis-selling scandal that should now be a thing of the past, but there is no doubt that the insurance, which can add thousands to the cost of a loan, is highly unpopular!</p> <div> </div> <div> (Pictured: Martin Lewis after the PPI payout ruling)</div>
- 2. Mortgages<p> Complaints about mortgages jumped by 38% in the last six months of last year, the FOS figures show, compared to an increase of just 5% in investment-related complaints.</p> <p> Common gripes about mortgages include the exit penalties imposed should you want to sell up or change you mortgage before a fixed or discounted deal comes to an end, and the high arrangement fees charged by many lenders.</p> <div> </div>
- 3. Savings rates<p> While there is nothing in the data released by the FOS about the number of complaints relating to savings accounts, hard-pressed savers have been struggling with low interest rates for several years now.</p> <p> You can get up to 3.10% with Santander's easy-access eSaver account, but many older accounts are paying 1.00% or less and even this market-leading offer includes a 12-month bonus of 2.60% - meaning that the rate will plummet to just 0.50% after the first year.</p>
- 4. Borrowing rates<p> Banks are imposing the highest authorised overdraft interest rates since records began, with today's borrowers paying an average of 19.47%, according to the Bank of England.</p> <p> A typical Briton with an overdraft of £1,000 is therefore forking out around £200 in interest charges alone. Coupled with meagre returns on savings, it's enough to make your blood boil!</p>
- 5. Penalty charges<p style="text-align: left;"> While authorised overdrafts may seem expensive, going into the red without permission will cost you even more due to huge penalty fees.</p> <p style="text-align: left;"> Barclays, for example, charges £8 (up to a maximum of £40 a day) each time that there is not enough money in your account to cover a payment.</p>
- 6. International transfer charges<p> If you need to send money abroad, the likelihood is that your bank will impose transfer charges - and offer you a poor rate of exchange. Someone transferring a five-figure sum could easily lose out by £500 or more as a result.</p> <p> The good news, however, is that you can often get a better deal by using a currency specialist such as Moneycorp.</p>
- 7. Waiting on the phone<p> <span style="text-align: left; ">Automated telephone banking systems, not to mention call centres in far-flung parts of the world, are one of our top gripes - especially as we often encounter them when we are already calling to report a problem.</span></p> <p> In the words of one disgruntled customer: "What is it about telephone banking that turns me into Victor Meldrew? Well, maybe it's the fourteen security questions, maybe it's the range of products that they try to push or maybe it's because I'm forced to listen to jazz funk at full volume while my phone bill soars.</p> <div> </div> <div> "Actually though, I think it's because the people I eventually speak to rarely seem able to solve the issue I'm calling about."</div>
- 8. Being treated like a number<p> The days of a personal relationship with your bank manager are long gone - for the huge majority of us at least.</p> <p> When ethical Triodos Bank investigated recently why around 9 million Britons would not recommend their banks to a friend or relative, it found that almost a third felt they were not treated as individuals. Another 40%, meanwhile, were simply disappointed with the customer service they received.</p> <div> </div>
- 9. Long queues in branches<p> <span style="text-align: left; ">When you're in a rush, the last thing you want to do is wait in a long queue at your local branch.</span></p> <p> Researchers at consumer champion Which? recently found that most people get seen within 12 minutes, but you could have a much longer wait if you go in at a busy time. Frustrating stuff!</p> <div> </div>
- 10. Bankers' bonuses<p> The Triodos Bank research also indicated that the bonus culture that ensured the bank's high-flying employees received large salaries, even when it was making a loss at the taxpayer's expense, was hugely unpopular with consumers.</p> <p> About a quarter of those who would not recommend their current banks said this was the main reason why. And with RBS executives sharing a £785 million bonus pool despite the bank, which is 82% publicly owned, making a loss of £2 billion last year, it's not hard to see why.</p>
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