How low rates save you tax

If you're aged 75 or over you can receive income £9,640 tax-free. Falling interest rates (currently at 0.5%) may mean your income has fallen under that level.

For example, say you have savings of £60,000. When rates were 3.5%, you would have received £2,100 annual interest before tax. Now that rates are just 0.5%, you stand to receive just £300 (again, before having to pay tax on that).

Falling rates

This fall in interest may be enough to pull your total annual income down below the level of your tax-free allowance. Bad news, yes, But the silver lining is that you should no longer have to pay tax on your interest payments.

If you are now receiving less than £9,640 a year in income, then you should go to your building society and ask for form R85. Fill this out and return it to your building society. They will then know not to deduct tax from your interest.

Simple to claim

Most building societies should have the form in their branches. Depending on your individual circumstances, the savings involved could be considerable.

"Many people may not be aware of this situation, so if you have elderly friends, or relatives on a low income, it's worth helping them to check this out," said Hagger. "It could possibly save them a few hundred pounds a year."

Elderly people are most likely to be eligible for tax-free rates. But others on low incomes stand to gain too.

If you are unsure whether you qualify for tax rebates, HMRC has a telephone helpline on 0845 980 0645.

Links (open new windows)

Moneynet.co.uk
HMRC Helpsheets