Personal Savings Allowance guide

zagfles

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 this

They do it because the HMRC IT systems are rubbish. It's clearly nonsense to include interest in the tax code of someone earning below the PA, unless the amount of interest is expected to be very large and so exceed the PSA and nil rate band.

That said, as above, it'll make no difference unless you get more/another pension which takes you close to the PA. If that does happen you might overpay tax and have to claim it back.

polymaff

@rosstev

Is this really a problem?  PAYE coding is just an indicator sent to PAYE sources of income that defines how much of that income is be taxed at 0%. It is also often used to get the tax due on non-PAYE sources of taxable income - e.g. most savings income.

EDIT: Incidentally, you can instruct HMRC not to use PAYE coding to collect tax on non-PAYE sources of taxable income - but then you must take responsibilty for paying the right tax at the right time

MatildaR

Hi, I've just filled out my self assessment online, and have a question about the Personal Savings Allowance. I am a higher rate tax payer (pay after pension contributions £99,750). When I include £420 of interest income, the income tax due is around £31 (when I leave this off I owe no tax). Anyone know why the £500 allowance is not getting applied to the £420 interest income (such that I would have no extra tax to pay?) Should I just leave it off the form? Many thanks

Dazed_and_C0nfused

There is no "allowance".
If you check your calculation you will see £420 is being taxed at 0% (savings nil rate of tax).

But it sounds like your adjusted net income is going to be £100,170.

This mean your Personal Allowance is reduced from £12,500 to £12,415.

Which means you will have to pay extra 40% tax on £85 of your other income.  £85 x 40% = £34.

Not quite your £31 but I think that is basically what's happening.

MatildaR

Ah that's it, thank you! (I had rounded my numbers a little, and your reasoning has matched perfectly)
Much appreciated

youth_leader

I watched Martin's show last night and am thinking of investing £85K in a one year fixed bond, the interest calculator shows that the interest will amount to over £1000.  How would I let HMRC know, I have never done a self assessment, both of my pensions are taxed at source. 

wiseonesomeofthetime

@youth_leader

The savings provider will normally ask for your National Insurance number as part of the application process and then report directly to HMRC at the end of the financial year of all interest added to your account that year.

Dazed_and_C0nfused

youth_leader said:

I watched Martin's show last night and am thinking of investing £85K in a one year fixed bond, the interest calculator shows that the interest will amount to over £1000.  How would I let HMRC know, I have never done a self assessment, both of my pensions are taxed at source. 

You don't need to let them know.  Unless the interest received was £10,000 or more then you wouldn't need to complete a Self Assessment return just because you have received some untaxed interest.

If you do owe some tax on the interest then HMRC will notify you, usually in the summer after the end of the tax year.

https://www.gov.uk/tax-overpayments-and-underpayments

And don't forget you need to have other taxable income of at least £16,310 (often £17,570) before the savings nil rate band (aka Personal Savings Allowance) can be used so depending on your other taxable income it may be no tax is due anyway 

youth_leader

Thank you very much, I really appreciate you replying.  I receive a small Teacher's Pension, plus a pension from my late husband's company, and do pay tax.  I will also be receiving my State Pension in 2023.

When my husband died in 2016 I was lucky enough to receive a pension from his company, unfortunately they didn't tax me correctly and in April 2017 I received a letter saying I owed HMRC £1300.  I asked to repay it over three years, it was never actioned, I found it all very confusing.  I  did set up a Government Gateway to check it all, I ended up having to send a cheque in payment in the end. I'm at a normal tax code at the moment, I'll see what happens in a year! 

Imvrasos

Apologies if this has already been answered, is the PSA interest added to general income with regards to the basic vs higher income tax rates, potentially escalating a basic rate payer into higher tax level and hence the lower PSA?

To clarify with an example assume the standard basic-higher income tax threshold of £50.27k /annum. The example taxpayer has employment income of £50k /annum, and non ISA interest income of £1k /annum. Would HMRC see this as an annual income of £51k, hence pushing the tax payer into higher tax with only £500 PSA?