Tax on Savings Interest + Income

Gordie44

What happens if your pension income is say £8000, and the interest from your savings is say, either (a) £6000, or (b) £9000 ?

In case (a), does it matter that the total savings interest is greater than £5000, if the total of income+ savings is less than £15600 (ie in this case £14000).

molerat

No, you can have £5000 in savings interest on top of your tax allowance so as long as the total income is below £15600 you can have it paid tax free. In case (b) you would not be allowed to have the interest paid tax free and would have to claim at the end of the year.

bigfreddiel

molerat wrote: »

No, you can have £5000 in savings interest on top of your tax allowance so as long as the total income is below £15600 you can have it paid tax free. In case (b) you would not be allowed to have the interest paid tax free and would have to claim at the end of the year.

I have mine paid tax free and declare it on my SA. Tax people and bank seem happy with that

fj

bigfreddiel

Better still, if you have your savings in an ISA no need to worry about any tax implications

fj

polymaff

Gordie44 wrote: »

What happens if your pension income is say £8000, and the interest from your savings is say, either (a) £6000, or (b) £9000 ?

In case (a), does it matter that the total savings interest is greater than £5000, if the total of income+ savings is less than £15600 (ie in this case £14000).

The only catch in the "income+savings" less than £15,600 means no tax" statement is that it doesn't apply if the "income" bit is greater than the personal allowance. You are talking the opposite case and so case a) will be tax free, case b) will incur £280 tax.

Next year, thanks to the PSA, both cases you state will be tax-free.

molerat

You can have an income of £15500 and interest of £100 and have the interest paid tax free. Any earnings over the tax allowance are deducted from the £5000 savings allowance.

polymaff

molerat wrote: »

You can have an income of £15500 and interest of £100 and have the interest paid tax free. Any earnings over the tax allowance are deducted from the £5000 savings allowance.

Which illustrates just how high the marginal tax rate is on non-savings income in the £5,000 range above the Personal Allowance for folk with taxable savings income. In the "up to £15,600" case you quote, there is £980 - £10 tax to pay, AND £4,900-worth of taxable savings relief lost.

I wonder if this up-to-40% marginal rate jeopardy was recognised when HM Treasury were planning the current version of the Starting Rate Allowance? Probably not - but it makes the concept of "tax-free up to £15,600" per se very misleading.

As I wrote, the OP's cases are the opposite of this rather nasty consequence.

xylophone

See http://www.which.co.uk/money/tax/guides/tax-on-savings-and-investments/tax-on-savings-/

http://www.taxvol.org.uk/about-tax/entitled-10-band-savings-interest/