Tax Free Savings Guide

Vaux

Hi. You refer to earnings below £17850, but what is classed as earnings? For example, private pension income and state benefit?

murphydavid

Vaux wrote: »

Hi. You refer to earnings below £17850, but what is classed as earnings? For example, private pension income and state benefit?

pension income both private and state is added to income in the tax calculation.
Stare benefits are or are not taxed as described here https://www.gov.uk/income-tax/taxfree-and-taxable-state-benefits

Yorkshire_Pud

The original article linked in opening post says in the first sentence "you can register to receive savings interest without paying tax on it"

You do not have to register HMRC decide if you qualify or not so unless they make a mistake you don't need to inform them and you shouldn't miss out if you don't "register" as there is no requirement to do so.

Correct me if Im wrong:)

curls

Thank you for your post Yorkshire Pud. I was thrown by this article and have spent the last hour searching for details on how to register! Now I can get on with contacting HMRC to find out why my tax code has been reduced to collect tax on interest when my earnings (earned and savings interest) are well below the allowances.

Dazed_and_confused

Thank you for your post Yorkshire Pud. I was thrown by this article and have spent the last hour searching for details on how to register! Now I can get on with contacting HMRC to find out why my tax code has been reduced to collect tax on interest when my earnings (earned and savings interest) are well below the allowances.

I think you have misunderstood your tax code.

I think it is highly unlikely your new tax code is making you pay tax.

If you have low income your taxable savings income will not attract any tax liability because you have spare tax allowances. That is probably what had happened in your case.

In this situation you cannot make use of the Personal Savings Allowance (which is actually a 0% tax rate).

Contacting HMRC won't change that and will probably only confuse you even more.

Can you confirm what you expect your taxable income is to be in 2019:20 and how it is made up between pensions, savings interest etc.

And what your current tax code is for 2019:20.

Dazed_and_confused

Was your pension income actually greater than £12,500??

Dazed_and_confused

Then you do realise that your tax code should be reduced to take into account some, or all, of your taxable savings interest.

What did you think was wrong with your tax code?

Dazed_and_confused

Unfortunately you have misunderstood how tax codes are calculated.

If your pension income is less than your Personal Allowance then the savings starter rate of tax does not apply to all your savings interest. It is only available for the amount over and above your unused Personal Allowance.

So for example if your pension income (from one source to make things easier) was say £11,800 and savings interest was £2,000 your tax code should be made up as follows,

Personal Allowance £12,500
Less interest £700
Tax code allowances £11,800
Tax code 1180L

Pension income £11,800 and tax code 1180L = no tax to be deducted

The remaining £1,300 savings interest needs to be taxed but at the savings starter rate of 0% so no tax actually payable.

Daisymaisy

Hi, I wanted to double check my understanding as I am trying to help my dad with some investments. He has the following income:

State pension £12204 per year
Private annuity £689.40 per year
Tax code duly adjusted by HMRC to 29L to take into account that £296 of his annuity is tax free. He therefore pays 20% income tax on £393.40.

By my calculation my father can then earn savings interest at 0% tax rate as follows:

£4606.6 starter savings rate (£5000-393.40)
£1000 personal savings allowance

I would appreciate it if someone can confirm if I have understood this correctly.

Many thanks

Dazed_and_confused

Assuming you haven't forgotten any other income then it looks spot on.