Lynn has earnings income of £4,000 and savings income of £6,000. Lynn’s personal allowance is £ 6,035 because she is under 65. Lynn’s taxable income is £ 3,965. The calculation below shows how this is worked out.
Total income £10,000
Less personal allowance £ 6,035
Taxable income £3,965
Lynn’s personal allowance is firstly used against her earnings of
£4,000 so none of her earnings are taxable. All of Lynn’s taxable
income is savings income.
The first £2,320 of taxable income is taxed at the special starting rate for savings of 10% and the rest is taxed at 20%. The calculation below shows how this is worked out.
£2,320 x 10% = £232
£1,645 x 20% = £ 329
Total Tax = £561
Lynn’s bank will have taken tax off all of her interest at 20% so
they will have taken off £1,200 (£6,000 x 20% = £1,200).
But Lynn is only due to pay £561 tax. This means she can claim a repayment
of tax from HM Revenue & Customs of £639 (£1,200 - £561).
