Personal Savings Allowance guide
Comments
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In round numbers, if you estimate £200 savings interest, HMRC will set your PSA to £200 but if you only receive £100 savings interest then you are only entitled to £100 PSA and HMRC will need to adjust your tax code accordingly.I'm a little confused by this. I'm a higher (not additional rate) taxpayer. I received around £100 interest in the tax year 2016-17.
On that basis, I should not be paying any tax on the interest I receive.
But when I filled in my tax return, I initially put £200 interest as I forgot to divide the amount earned in our joint account by two.
On the calculation page of the tax return it showed up as £216 * 0% = 0 due.
But when I amended the amount to £108, my total tax due went down by £22 - even though the calculation page of the tax return still showed the tax due on the savings interest as £108 * 0% = 0.
In other words, even though they are allegedly not levying tax on the interest, it is nevertheless still being counted in my income somewhere in the calculations and being added to my overall tax due. Surely this can't be right?
Hope I understood your question correctly.
Warning: In the kingdom of the blind, the one-eyed man is king.
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No, these are not estimates. These are the for the actual amount of interest received in the tax year 2016-17.
The actual interest received on the account was £216. However on my tax return I need to enter £108 because it is a joint account and therefore only 50% of the interest is mine.
My surprise was that making this correction reduced the amount of income tax I am due to pay. While this is good, what it does show is that I am being charged tax in relation to the amount of interest earned on this account, even though it is below what should be my £500 savings income that I am permitted to receive tax free.
On closer examination of the calculations, it turns out that despite being taxed directly at 0%, the savings interest is still being included in my overall income - and as such contributing to a reduction in my personal allowance. The amount that is removed from my personal allowance is then taxed at 40%.
In other words, the tax-free savings allowance isn't tax free for some people even if they receive less than their threshold for tax-free interest ... bloody crazy system.For where your treasure is, there will your heart be also ...0 -
In other words, the tax-free savings allowance isn't tax free for some people even if they receive less than their threshold for tax-free interest ... bloody crazy system.
Not crazy at all. Tax-free and Taxed at 0% are quite different concepts - and have been quite different for a very long time.
Your original posting contains errors and made-up terminology. Your use of the term highlighted above, likewise.
Those who make up their own terminology are doomed to misunderstand the rest of the world, QED.0 -
Yes, well thank goodness for smug gits like you who can look down their noses at all the rest of us, eh?
From the HMRC website "You may also get up to £1,000 of interest tax-free depending on which Income Tax band you’re in. This is your Personal Savings Allowance."
From the HMRC tax return calculation, the interest income is shown as taxed at 0%.
So when you've crawled out of your own !!!, then you can see that HMRC themselves refer to this both as "tax free" and "taxed at 0%".
Do have nice day!For where your treasure is, there will your heart be also ...0 -
Tirian,
You might not have any tax to pay on the interest but merely having it (outside of an ISA) means you have got an extra £108 taxable income.
It might be taxed at 0% courtesy of either the £5000 starter savings rate of 0% (probably not relevant to you) or the personal savings allowance rate of 0% but simply by having this taxable interest could mean, for example, you lose some of your Personal Allowance or Married Couples Allowance or have extra High Income Child Benefit charge to pay
Without more details about your own circumstances (for 2016:17) it's really impossible to say but as having this income can most definitely increase the overall amount of tax you have to pay then its perfectly possible for the income reduction to reduce your tax bill even though the income itself was being taxed at 0%.0 -
Yes, basically you need to think of it like the personal allowance. The same applies.Dazed_and_confused wrote: »Titian,
You might not have any tax to pay on the interest but merely having it (outside of an ISA) means you have got an extra £108 taxable income.
It might be taxed at 0% courtesy of either the £5000 starter savings rate of 0% (probably not relevant to you) or the personal savings allowance rate of 0% but simply be having this taxable interest could mean you lose some of your Personal Allowance or Married Couples Allowance or have extra High Income Child Benefit charge to pay.
Without more details about your own circumstances (for 2016:17) it's really impossible to say but as having this income can most definitely increase the overall amount of tax you have to pay then its perfectly possible for the income reduction to reduce your tax bill even though the income itself was being taxed at 0%.
Whenever the govt have increased the personal allowance (by say £1000), you might think that you can earn £1000 more and pay no more tax. Usually this would be the case, however in the case of things like the child benefit high income charge at £50k+ and the personal allowance reduction at £100k+, you entire taxable income is used, including income within allowances, such as the personal allowance and the personal savings allowance.0 -
Yes, that's basically what it is. £108 extra income = £54 off my personal allowance = £54 more income being taxed at 40%, = £22 more tax.
Not exactly intuitive. And certainly not mentioned in any of the budget hoop-la about the tax-free savings initiative.
Still, at least it's only a half hit. Time to change the account to wife's name only!For where your treasure is, there will your heart be also ...0 -
Sorry if I might have missed this somewhere earlier in the thread, but has anyone raised the issue of the PSA apparently being frozen in time? When other allowances go up to take account of inflation, the £1000 from 2016 has not. Is the another Government wheeze to hit those with savings by quietly eroding the allowance? :mad:0
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