Interactive Investor

How much tax should I pay on my savings?

19th February 2019 15:18

Patrick Connolly from interactive investor


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“Do I pay income tax under the following scenario?If my savings interest income is £6,000 and dividend income is £6,000, is my taxable income £12,000? Or do I use my £1,000 personal savings allowance and £2,000 dividend allowance to reduce my personal income to £9,000 before tax? I never find tax simple – I hope you can help.”

From: SP/Huddersfield


The first £1,000 of savings income for a basic-rate taxpayer and £500 for a higher-rate taxpayer benefits from a 0% income tax rate, as does the first £2,000 of dividend income. However, these amounts do still count towards your total income, so in answer to your question, your total pre-tax income is £12,000.

Most of this amount falls within your personal income tax allowance of £11,850 in the 2018/2019 tax year. The small amount in excess of this will be taxed as dividend income but, as it falls within your £2,000 annual dividend allowance, it is taxed at 0%, meaning you will have no tax to pay.

The personal allowance is set to increase to £12,500 from the next tax year on 6 April 2019.

This article was originally published in our sister magazine Moneywise, which ceased publication in August 2020.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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