Currently, if other taxable income is below £2,880 then the remainder of this band is available to savings income to be taxed at the starting rate of 10%. This will change for the next tax year.
From April, the band will be increased from £2,880 to £5,000. At the same time, the starting rate of tax will fall from the current 10% to 0%. This means that with the right mix of income an individual can receive up to £15,600 free of tax.
If the interest is received from a bank or building society then people who qualify to receive their interest gross should complete form R85 and hand it to their bank or building society. However, if the interest is from National Savings, including the new pensioner accounts, then they will need to reclaim overpaid tax using form R40.