Tax Free Savings

Rikey

Hypothetical extreme scenario...

I have annual savings income in 2015/16 of £15,000 but no other income at all.

I am allowed in this case £5,000 tax free interest. Can I offset the other £10,000 interest earned against my pa of £10,600 thereby having no tax to pay?

molerat

Strictly speaking you allocate £10600 against your annual allowance and £4400 against savings income but it all comes out the same, so yes you can have up to £15600 interest paid tax free.

Rikey

Thank you. I wasn't sure if savings income was totally separate from the pa now and only £5000 was allowed before tax. So .any mix of earned income etc plus savings interest up to a total of £15600 is tax free?

molerat

You can have the difference between "other earnings" and your personal allowance + £5000 tax free.

examples with a £10600 tax allowance.

£12000 earnings so 10600 + 5000 = 15600 - 12000 = £3600 tax free interest.

£9000 earnings so 10600 + 5000 = 15600 - 9000 = £6600 tax free interest

The £5000 is reduced by other income above the personal allowance.

Rikey

Yes, your second example does answer my query, thank you.
"9000 earnings so 10600 + 5000 = 15600 - 9000 = £6600 tax free interest"
So when earnings are less than 10600, that "effectively" increases the tax free interest of 5000 by the amount of the difference, as in your example (by an extra 1600)?
I assume I've understood that correctly?
Thank you again.

molerat

Yes, the additional interest just becomes "income" for tax purposes and is set off against your tax allowance.

Rikey

Very much appreciated. Thank you.

Rikey

The £1000 Personal Savings Allowane for 2016/17? Is this simply increasing the current £5000 to £6000?

molerat

In a way yes but the £1000 is available to all basic rate tax payers, earn £20000 and you still get the £1000 tax free but none of the £5000.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/414026/Savings_factographic_final.pdf

Rikey

Ah yes, I understand. That's what they mean about nearly all savers no longer paying tax on the interest. Many thanks again.

zygurat789

At last they seem to have the wording correct using "taxable income"
whereas the gov.uk site keeps using "earnings" which is totally wrong.
Mind you this is the treasury, there would be little hope for us if they get it wrong.
If the conservatives are not in power after the election you can forget it.