Tax Free Savings Guide

eskbanker

ddss said:

eskbanker said:

ddss said:

PAYE coding is trying to collect tax on interest over £1000 (not yet) paid in current tax year.  Can they insist on this? Based on estimate which is year before last (self-assessed) and now wildly optimistic.  When I asked for a reduction, they showed no signs of understanding my query.

Perhaps it's because you shouldn't 'ask for a reduction' or be making a 'query' as such, you should be telling them that their estimate of savings interest is inaccurate and request that the tax code be adjusted accordingly.

Well that is what I did.  An estimate of a future event is usually going to be inaccurate.

check-income-tax doesn't have a reference to untaxed interest (for me)

But tax coding is inherently forward-looking and so has to be based on estimates - naturally these can't always be right, but if, based on your knowledge of your 2020/21 balances and interest rates, you calculate a more accurate figure than the one quoted on your coding notice (which, as you say, will essentially be a carry-forward from the last full year they have figures for) then they should be willing to adjust the code to accommodate that.

ddss

I'll try again...or wait for them to catch up with my 2019/2020 self-assessment (!).  They were quick enough to use the SA figure when it suggested I could pay more tax!

SaversLose

Article seems to be incorrect.

States £5000 has 0% tax. Only in 2015-2016. Now in April 2021 gov.uk Income tax rates and allowances states £5000 has 10% tax.

ScooterRida

Dazed_and_confused said:

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.

I would be grateful for some tax code and savings interest advice, I "think" I may fall into this category as stated above.

My current income for the last 2 years has been from monthly drawdown and savings and both my wife and I are keeping below our personal tax allowances for income.
We have several ISA savings accounts, two are stocks and shares and two are instant cash ISAs.
We also have standard instant savings accounts.
My understanding is that ISAs never generate income tax but the instant savings accounts do but we have the £1000 "tax free" personal allowance.
However from last year I started seeing Untaxed Interest on Savings appear via our Personal Gateway. For this coming year 2022-23 I have a figure of £366 and the wife has £221. From what I've read these are their estimates from previous receipts?

So the main question is why are the HMRC deducting these figures from our tax codes, where in theory lowering our ability to earn more before tax?
I understand the banks have a legal obligation to report the interest to the HMRC but are ISAs reported and included or is it just the non ISA accounts?
I called the HMRC helpline and they stated that the reported figure has to go somewhere but I then stated but surely it's only if you are above the £1000 personal allowance which is the unpaid tax and we have never made over the £1000 interest on all of our savings accounts and stay within our personal tax codes. She eventually stated that the £1000 allowance only applies above the current £12570 and if you are below then that's deducted from the personal code?
from what has been stated in the above reply I'm obviously also unsure as to why this is and potentially feels like being penalised?
Purely for context, we both start our State Pensions this coming August and September and any monthly drawdown is also kept within our personal tax codes and I claim the wife's 10% code. 

Therefore, if this is correct would we be better off investing our easy access savings to easy access ISAs? That's assuming these £366 and £221 figures they've generated are only from the non ISAs and the ISAs would hopefully have nothing added for deduction to our tax codes in the future?

Guidance would be appreciated. Thanks.

Bobbydue

Hi all, 

just looking for a sense check on savings allowances please?

i earn £8305 through a personal pension, no further income, my Tax Coding is 1130n as I give some of my Tax allowance to my husband.

i understand I can get the following savings Tax free:
Balance of Tax allowance       £2995
Savings Allowance                 £1000
Additional Saving Allowance  £5000

Total Tax Free Savings            £8995



Thanks for taking the time to read.

ScooterRida

Bobbydue said:

Hi all, 

just looking for a sense check on savings allowances please?

i earn £8305 through a personal pension, no further income, my Tax Coding is 1130n as I give some of my Tax allowance to my husband.

i understand I can get the following savings Tax free:
Balance of Tax allowance       £2995
Savings Allowance                 £1000
Additional Saving Allowance  £5000

Total Tax Free Savings            £8995



Thanks for taking the time to read.

We are in the same situation but receive state pensions with savings. As you've written that's my understanding as how it works. As we receive below the personal allowances and have interest over the £1000 personal savings allowance each, hoping that the low income £5000 savings allowance will also apply. To be 100% sure I'm waiting to see what the HMRC do on our personal gateway accounts for their end of the 2022/23 year calculations. If they tax us then it'll be claim time.

Bobbydue

ScooterRida said:

'Bobbydue said:

Hi all, 

just looking for a sense check on savings allowances please?

i earn £8305 through a personal pension, no further income, my Tax Coding is 1130n as I give some of my Tax allowance to my husband.

i understand I can get the following savings Tax free:
Balance of Tax allowance       £2995
Savings Allowance                 £1000
Additional Saving Allowance  £5000

Total Tax Free Savings            £8995



Thanks for taking the time to read.

We are in the same situation but receive state pensions with savings. As you've written that's my understanding as how it works. As we receive below the personal allowances and have interest over the £1000 personal savings allowance each, hoping that the low income £5000 savings allowance will also apply. To be 100% sure I'm waiting to see what the HMRC do on our personal gateway accounts for their end of the 2022/23 year calculations. If they tax us then it'll be claim time.

Hiya, looking on other sites its seems to be correct, but would be interested in how it works out for you, good look

Dazed_and_C0nfused

ScooterRida said:

Dazed_and_confused said:

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.

I would be grateful for some tax code and savings interest advice, I "think" I may fall into this category as stated above.

My current income for the last 2 years has been from monthly drawdown and savings and both my wife and I are keeping below our personal tax allowances for income.
We have several ISA savings accounts, two are stocks and shares and two are instant cash ISAs.
We also have standard instant savings accounts.
My understanding is that ISAs never generate income tax but the instant savings accounts do but we have the £1000 "tax free" personal allowance.
However from last year I started seeing Untaxed Interest on Savings appear via our Personal Gateway. For this coming year 2022-23 I have a figure of £366 and the wife has £221. From what I've read these are their estimates from previous receipts?

So the main question is why are the HMRC deducting these figures from our tax codes, where in theory lowering our ability to earn more before tax?
I understand the banks have a legal obligation to report the interest to the HMRC but are ISAs reported and included or is it just the non ISA accounts?
I called the HMRC helpline and they stated that the reported figure has to go somewhere but I then stated but surely it's only if you are above the £1000 personal allowance which is the unpaid tax and we have never made over the £1000 interest on all of our savings accounts and stay within our personal tax codes. She eventually stated that the £1000 allowance only applies above the current £12570 and if you are below then that's deducted from the personal code?
from what has been stated in the above reply I'm obviously also unsure as to why this is and potentially feels like being penalised?
Purely for context, we both start our State Pensions this coming August and September and any monthly drawdown is also kept within our personal tax codes and I claim the wife's 10% code. 

Therefore, if this is correct would we be better off investing our easy access savings to easy access ISAs? That's assuming these £366 and £221 figures they've generated are only from the non ISAs and the ISAs would hopefully have nothing added for deduction to our tax codes in the future?

Guidance would be appreciated. Thanks.

@ScooterRida

You've totally misunderstood and are not being penalised.  If you think you are could you explain who is currently deducting tax if you think none is due?

You can only use the savings nil rate band (aka Personal Savings Allowance) if you have already used your Personal Allowance and any available savings starter rate band.

If you have unused Personal Allowance then the interest will use that.

Once your State Pension starts your pension income might be say £15,000.  In which case you won't have any spare Personal Allowance and the only time there would be a tax code deduction for interest would be if you owed some tax on the interest.

Basically you're trying to compare your current circumstances with totally different circumstances.  Your tax code will generally reflect the current position, not what might happen in the future.

When your State Pension starts your tax code will be reviewed and adjusted accordingly.

Dazed_and_C0nfused

Bobbydue said:

Hi all, 

just looking for a sense check on savings allowances please?

i earn £8305 through a personal pension, no further income, my Tax Coding is 1130n as I give some of my Tax allowance to my husband.

i understand I can get the following savings Tax free:
Balance of Tax allowance       £2995
Savings Allowance                 £1000
Additional Saving Allowance  £5000

Total Tax Free Savings            £8995



Thanks for taking the time to read.

@Bobbydue

You're £10 out and things are in the wrong order.

Your Personal Allowance will be £11,310.

Pension income of £8,305 leaves you with spare Personal Allowance of £3,005.

Plus savings starter rate band of £5,000 and only then can you use the savings nil rate band of £1,000.

Total of £9,005 before tax would be owed.

Bobbydue

Dazed_and_C0nfused said:

Bobbydue said:

Hi all, 

just looking for a sense check on savings allowances please?

i earn £8305 through a personal pension, no further income, my Tax Coding is 1130n as I give some of my Tax allowance to my husband.

i understand I can get the following savings Tax free:
Balance of Tax allowance       £2995
Savings Allowance                 £1000
Additional Saving Allowance  £5000

Total Tax Free Savings            £8995



Thanks for taking the time to read.

@Bobbydue

You're £10 out and things are in the wrong order.

Your Personal Allowance will be £11,310.

Pension income of £8,305 leaves you with spare Personal Allowance of £3,005.

Plus savings starter rate band of £5,000 and only then can you use the savings nil rate band of £1,000.

Total of £9,005 before tax would be owed.

Thank you