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Tax Free Savings Guide

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  • eskbanker
    eskbanker Posts: 37,182 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    Mee said:
    eskbanker said:
    Mee said:
    I've read How the starting rate for savings works - Money Saving Expert page, but I'm still confused as to the £5,000 starting rate for savings affects me.
     I earn on average (on a zero hours contract) around 6K at most, but HMRC have reduced my tax code due to supposedly earning around 3K interest (which I need to check) to 923 L tax code.  So far this tax year I've worked and earned more than most years and I'm likely to breach the new personal allowance of 9K, but I don't understand how this works with £5,000 starting rate for savings as it seems HMRC seem to think I need to pay tax on less than £5K.
    It'll all come out in the wash but if you're concerned about temporarily paying unnecessary tax then update HMRC about your anticipated non-savings income, which can be done online via your personal tax account.
    Thanks. I can't see online how I can do this as a PAYE or what BBSI data they are working on, but hope they will send a list when I get through by 'phone.
    Chances are that the interest data they'll be working from will still be estimates based on 2023/24, although 2024/25 ought to be updated soon.

    If your earned income is less than £12,570 then you won't be liable for tax on it, and on top of that you can earn at least £6K more in savings interest income because of the allowances explained in that MSE article.
  • Dazed_and_C0nfused
    Dazed_and_C0nfused Posts: 17,587 Forumite
    10,000 Posts Fifth Anniversary Name Dropper
    Mee said:
    I've read How the starting rate for savings works - Money Saving Expert page, but I'm still confused as to the £5,000 starting rate for savings affects me.
     I earn on average (on a zero hours contract) around 6K at most, but HMRC have reduced my tax code due to supposedly earning around 3K interest (which I need to check) to 923 L tax code.  So far this tax year I've worked and earned more than most years and I'm likely to breach the new personal allowance of 9K, but I don't understand how this works with £5,000 starting rate for savings as it seems HMRC seem to think I need to pay tax on less than £5K.
    Your tax code allowances (not your Personal Allowance) have been reduced as based on their estimate HMRC think you have spare tax code allowances that the interest will use up.

    If you know you will earn more than expected then just update your estimated earnings/pay on your Personal Tax Account and your tax code will be automatically reviewed and updated.

    In simple terms the estimated pay is what you expect to see on your P60 next April.

    If you estimate it will be £12,570 then you will have no spare allowances and, based on what you have posted, your tax code will change to 1257L.

    Your interest of ~£3k would all then be taxed, but at a 0% tax rate (the savings starter rate).
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