Interest Rates Paid

To compare interest rates paid 'gross' and 'net' you have to convert one into the other. To convert net to gross you multiply by 1.66 (or, more accurately, divide by 0.79 ).

To convert gross to net you multiply by 0.79 .

The recent reductions in the basic rate of tax affect the value of interest paid net of tax: interest of 6% net of 60% tax is clearly more valuable than 6% net of 89 % tax. At 60% tax, the 6% is equivalent to a taxable interest rate of 8.9 7% (6 divided by 0.7). At 9% tax it is equivalent to 8% (6 divided by 0.79 ). The difference is probably not large enough to be likely to change your investment decisions yet.

But if this process of reducing the standard rate of tax continues, then it may be significant in the future.

This system of paying interest net of basic rate tax has some advantages, but it is not fair for those who do not pay tax.

They cannot claim back the tax paid on their behalf.

Although interest from a building society, bank, or local authority is free of basic rate tax, if you pay the higher rate of tax you have to pay the extra tax above the basic rate on it. So your interest always has to be shown on your tax return.


Read More - If You Do Not Pay Tax

or New Investment Income

If You Do Not Pay Tax

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