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    • where are we
    • By where are we 11th Jan 18, 2:12 PM
    • 195Posts
    • 53Thanks
    where are we
    GOV>UK Personal tax account
    • #1
    • 11th Jan 18, 2:12 PM
    GOV>UK Personal tax account 11th Jan 18 at 2:12 PM
    I am calculating my (non tax paying) wife`s UFPLS from SIPP for 17-18 to bring her income up to her Personal Tax Allowance, using the GOV.UK personal tax account. Under "Deductions from your Personal Allowance" they add up (State Pension + Untaxed interest on savings and investments + Marriage Allowance transferred to spouse/civil partner) and subtract this total from Personal Allowance (PA) £11,500 to give "Your total tax-free amount". Why do they include "Untaxed interest on savings investments" in calculating your "Your total tax-free amount" when this is covered by the Personal Savings Allowance £1000 and the 0% Starting Rate for Savings £5000. It then appears that the UPFLS that my wife can take is reduced by the amount of her "Untaxed interest on savings".
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    • vacheron
    • By vacheron 11th Jan 18, 2:35 PM
    • 815 Posts
    • 746 Thanks
    • #2
    • 11th Jan 18, 2:35 PM
    • #2
    • 11th Jan 18, 2:35 PM
    I think could be because HMRC use "adjusted net income". To calculate your tax band and this includes savings income as it still regards it as income even though there is no tax to pay.

    This means you can be considered a taxpayer by HMRC even though you have (legally) not paid a penny in tax!

    At the thresholds between tax bands this becomes even more complicated. Imagine your income is £500 under the higher rate threshold but you also receive £1000 in "untaxed" savings income.

    Many people would logically assume that as you are not required to pay any higher rate tax you would not be a "higher rate taxpayer", however in reality that untaxed interest would actually take you £500 over the higher rate threshold in HMRC's eyes, so even though the £1000 "would" have been tax free, by going over the higher rate threshold your savings allowance amount is reduced from £1000 to £500 meaning that your "upper" £500 of savings will now be taxed at 40% costing you £200!

    I fell foul of this a while back where I assumed that "tax free" savings would be disregarded when calculating your tax band. I was wrong, and it cost me my £220 marriage allowance rebate because of it!
    Last edited by vacheron; 11-01-2018 at 2:50 PM.
    • The rich buy assets.
    • The poor only have expenses.
    • The middle class buy liabilities they think are assets.
    Robert T. Kiyosaki
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