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Savers could be overpaying on tax

Some people who have not registered to receive gross interest could be paying too much tax on their savings income.

The warning came from the Halifax after it conducted an analysis of its savings customer book.

Savers over the age of 65 in particular who depend for a part of their retirement income on the interest generated by their deposits have already suffered as a result of the dramatic fall in interest rates.

However, the Halifax discovered that only one in three of its savers aged over 65 had registered to receive gross interest. This means that many savers could be paying as much as £75 a month in additional tax.

The rules say that people need to pay tax on income from their savings. The only exemption is if their overall earnings for the tax year fall below the individual tax allowance.

Banks and building societies are obliged to deduct 20 per cent tax at source except where the saver has registered to receive gross interest.

People who don’t earn above the allowance threshold must sign a HMRC R85 declaration which allows them to get their savings income free of a tax deduction.

The concern is that, with interest rates plunging, many savers whose interest income was once above the individual tax allowance limit may now have slipped below the threshold.

Savers who depend on interest from savings to supplement their retirement income are being advised to check that they are registered for gross interest should they qualify.