SAIM1110 - Savings and investment income: tax on savings and investment income: example

Example

In the tax year 2011-12 Jane has income of £33000 from employment, and savings income in the form of net building society interest of £800 and dividends of £9000. The personal allowance for 2011-12 is £7475 and the threshold for higher rate tax is £35000. The 10% starting rate for savings income limit is £2560.

The dividends are taxed as the highest part of income and are taxed partly at the dividend ordinary rate of 10% and partly at the dividend upper rate of 32.5%. The building society interest is the next highest part of total income and is taxed at the savings rate of 20%. The starting rate for savings does not apply because non-savings income fully occupies the first £2560 of chargeable income. Her tax liability in 2011-12 is as follows: