Earn Savings Tax-Free
Saturday, February 6, 2010 6:29
Some pensioners may be able to save hundreds of dollars per year to earn their savings exempt from tax, with simply filling out a form.
The falling savings rates have been the bane of savers in the past year, but, some pensioners may still manage to save a portion of their nest egg.
As a result of the abysmal savings rates, the incomes of some retired people are under the individual tax-free threshold, which would entitle them to make their savings tax-free. This could equate hundreds of pounds of much-needed additional income per year.
For example, a single pensioner over 75 years has an annual tax allowance of £9640. It might seem low, but according to a study by the Office of National Statistics last year, half of single pensioners’ income from pensions was less than £ 6000.
Before interest rates began to fall, a pensioner could receive a state pension of £ 95.25 per week, a company pension scheme at £ 85 a month and have £ 60000 savings at 7% interest, which equals to £10173. In this case, the pensioners are put higher than their tax-free threshold. It will make their savings being taxed at 20%, which results in a loss of £840.
However, if we picture the same scenario with a much lower rate of 3.5%, the situation changes dramatically. The total interest income drops by half, bringing down the total revenue to £8073, below the threshold. Therefore, their savings rates from £ 2100 including tax has been paid, resulting in savings of EUR 420 as the 20% savings tax is not applicable.
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