3 Million Pensioners Could Reclaim £1,200 Savings Tax

Up to three million pensioners are being encouraged to reclaim tax on their savings, which could be worth up to £1,200 after a Government department recommended that the 10 percent rate be stopped.

The Office of Tax Simplification has called for an urgent overhaul of the way that pensioners are being taxed. Whilst this should simplify many people's financial affairs, others could lose out on thousands of pounds of interest on their savings if the 10 percent tax rate is abolished.

Evidence suggests that the vast majority of pensioners and low earners who are entitled to pay less tax on their savings do not claim this benefit. Those pensioners who have missed out are being urged to reclaim their money now before the benefit disappears. People are allowed to backdate claims for up to four years, which should mean some pensioners will collect a tax rebate worth up to £1,200.

Currently pensioners whose income exceeds the personal allowance have 20 percent deducted from the interest paid on their savings (with the exception of savings in tax-free Isas).

If a pensioners income, excluding savings, is less than £13,210 (£13,370 if you are over 75) they can reclaim half of the tax paid. This is done either by completing a self-assessment form or a special HMRC form known as an R40.

This will typically give pensioners an extra £90 a year in interest, however the maximum that can be earned is £271. Those who haven't claimed this rebate and now are reclaiming for four years could be due a large amount. Although interest rates are currently low, some of these savers would have had money locked into fixed-term bonds, which paid far more competitive rates three or four years ago.

Jason Riddle from Save Our Savers said:

Many pensioners and those on low incomes are not getting the tax benefit to which they are entitled. But the Government should make it easier to claim this tax, not get rid of it completely. This is a real slap in the face for low-income savers, who have already seen the interest they get on their savings collapse by 60 percent since the start of the financial crisis.

However, the Office of Tax Simplification said that while the 10 percent tax rate should be removed, the Government should raise the tax-free Isa limit to ensure that those in these income bands would not lose out.

A spokesman said: "Work would have to be done to see what an appropriate Isa limit would be, after this change." The Government may be unlikely simply to raise the Isa limit by the full amount, as this would reduce the Treasury's tax take on savings particularly as so few people claim the 10p rate.