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Personal Savings Allowance guide
Comments
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The principle is correct, in that what is generally referred to as an allowance isn't tax-free as such, but is more accurately a nil-rate band, i.e. it counts as taxable income but is taxed at 0%, as mentioned in the post immediately before yours.
This does indeed mean that those close to rate thresholds can be pushed over them by the savings income within that band, a feature of the PSA that was identified in the MSE blog piece at the time, as well as within the main article.
If you post details of your various income streams and the tax you've been advised to pay, there are plenty of posters on here who'll be able (and often willing!) to validate this....0 -
A 0% band is the way to think of it. First comes salary and anything else eg pension, then comes savings income, and then comes dividend income to make your gross. Assuming the total gross is over the 40% threshold by dividends (but below the highest band), then the savings get £500 worth at 0%, the dividends get £2000 at 0%, 7.5% tax up to the higher rate threshold, and 32.5% tax for the dividends above the 40% threshold.0
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If you type savings and dividends fact sheet LITR into Google you will bring up a pdf savings and dividends tax 2018.19 Final which is a helpful guide.0
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I had assumed the savings interest would be free of tax
Not sure exactly what "free of tax" means but as others have said you will not owe any tax on the savings interest in the scenario you describe.
But, the savings interest will normally use some of your basic rate tax band which can in turn mean that your other income is taxed at a higher rate of tax than it otherwise would be. So you pay more tax overall despite owing no tax on the savings interest.
However, depending on the amounts of each type of income you have it might be possible to juggle things in such a way that you can minimize the additional tax that HMRC would normally say is due.
It all depends how much non savings income you have (pension, wages, self employment, rental income etc), how much savings interest and how much dividend income.
If you provide some figures (and the tax year in question) it should be possible to say if the amount you think you have to pay is correct or can be reduced.
And finally, where you are resident for tax purposes in the year in question.0 -
Interesting case. Depending on the relative amounts of the non-savings and the dividend income, the annoying effect of the savings income you have, correctly, spotted may be negligible. For your sake, I hope/expect that it is low non-savings and high dividend income!0
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Trying to understand how to correctly report the amount of interest I have made from savings this tax year to HMRC as I am over the £1k PSA this year. HMRC have recently altered my tax code from the standard 1250L this tax year to 1244L for the upcoming tax year.By the time this tax year is out I will have made £181 in interest from savings above the £1k personal savings allowance, this excludes interest from savings in an ISA & LISA, and therefore I expect to pay £36 (20%) back through PAYE. Is that correct? In the upcoming tax year I will have no taxable interest from savings due to larger use of ISA/LISAs.The HMRC Personal Tax Account estimates I will have no deductions this tax year, and £53 deductions due to tax on interest from savings in the next tax year. I think my tax codes are very minimally wrong for both years, can I make this right? I appreciate the banks only provide HMRC an update each summer, so they must always be wrong for any active account switching saver above the PSA limit.From my research there appear to be options of adjust through HMRC Personal Tax Account online (online adjustment form is unclear to specify tax from savings), adjust individual bank account estimates through a specific more difficult page to find of the Personal Tax Account (which is all completely wrong as it's estimated based on the previous year when I had different accounts), call HMRC, find an appropriate tax form, or fill in a tax self assessment (which seems extreme?)Is it normal for tax on interest from savings to cause this one year lag on the tax code? Anyone else with experiences of trying to correct theirs? Am I on the right lines here? Hope the PSA forum is appropriate for this question, maybe there's a better tax related one.0
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rhodesmjr said:Trying to understand how to correctly report the amount of interest I have made from savings this tax year to HMRCTotal your taxable savings income for the tax year, round it down to the nearest pound and report that to HMRC directly or via SA. (NB when reporting, the PSA has no relevance)As for the uncertainty in the paying-off of any tax arising, just keep an eye on your PAYE tax coding and/or any statement of account you receive.And, relax..
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Is it normal for tax on interest from savings to cause this one year lag on the tax code?
Sort of. Unless you keep HMRC updated then they will usually base your tax code on the interest received in the previous tax year or the one before that and it would work along the following lines.
NB. this only relates to what will happen in respect of one tax year, 2020:21.
January/February 2020 = HMRC calculate your 2020:21 tax code using the interest information from 2018:19
Spring 2020 = banks report the interest details for 2019:20
Summer 2020 = HMRC update your 2020:21 tax code to take account of the interest reported for 2019:20
Spring 2021 = banks report the interest details for 2020:21
Summer 2021 = HMRC review the tax paid for 2020:21 and if they owe you anything back or you owe extra tax they will send you a calculation. And refund the tax overpaid if you have paid too much. They usually ignore small amounts of tax owed.
January 2022 = HMRC calculate your 2022:23 tax code using the interest information from 2020:21 and include any tax owed from 2020:21.
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My tax code reduced by the amount of interest earned on savings.My only income,a works pension, is well below my tax code of 1250L contacted hrmc they said that has i am paying no tax on my pension they have included interest earned in my tax code thus the reduction.I am confused why they have done this0
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rosstev said:My tax code reduced by the amount of interest earned on savings.My only income,a works pension, is well below my tax code of 1250L contacted hrmc they said that has i am paying no tax on my pension they have included interest earned in my tax code thus the reduction.I am confused why they have done this0
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