How the 10% savings rate works

As the basic rate of income tax has been reduced to 20% (from 22%) they've also got rid of the 10% starting tax band. There is though a new 10% savings rate £2,320 of savings income. Savings income for this purpose is effectively bank & building society interest as most other income is classed as non-savings (eg earnings, pensions, taxable social security benefits, trading profits and income from property) Dividends are treated separately and still taxed at 10% or 32.5% (effective 0% or 25%). What's interesting though is that the savings rate isn't just a standalone rate that applies to the first £2K of savings income. If your non-savings income exceeds the new starting rate limit of £2,320 then the starting rate for savings will not be available for the savings income. You'll then taxed at the basic rate of 20%. So if you have earnings, rents or profits above £2,320 you won't get the benefit of the 10% band! To be fair its the same position as under the pre April 2008 rules as savings income would be treated as the final slice but nevertheless it's not immediately apparent from a cursory reading of the income tax rates.