Personal Savings Allowance guide

polymaff

Imvrasos said:

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?

The PSA you get is set by the total of your taxable income.  The PSA is not part of your taxable income, it just defines how much of your taxable savings income will be taxed at 0%.

Imvrasos

polymaff said:

Imvrasos said:

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?

The PSA you get is set by the total of your taxable income.  The PSA is not part of your taxable income, it just defines how much of your taxable savings income will be taxed at 0%.

Thank you, that was my understanding as well. I find it quite interesting these allowances are frozen since 2016, with the pound devaluing since then, tax on savings interest is effectively increasing on an ongoing basis.

siggs

Sorry if this has been answered before!

I'm planning ahead for next tax year and whether I need an ISA. In October 2023 I will get a pay rise and will go into the higher tax band (just - I will be £30 into the higher band!).

It's not clear if this means my PSA is reduced to £500 automatically? Or if it stays at £1000 because across the whole tax year my total earnings remain below £50,270? (I'm aware come 2024/2025 I will be solidly in the higher rate tax for the full year so PSA will reduce, just wanted to maximize savings in the next tax year whilst rates are good)

Thanks

Notepad_Phil

siggs said:

Sorry if this has been answered before!

I'm planning ahead for next tax year and whether I need an ISA. In October 2023 I will get a pay rise and will go into the higher tax band (just - I will be £30 into the higher band!).

It's not clear if this means my PSA is reduced to £500 automatically? Or if it stays at £1000 because across the whole tax year my total earnings remain below £50,270? (I'm aware come 2024/2025 I will be solidly in the higher rate tax for the full year so PSA will reduce, just wanted to maximize savings in the next tax year whilst rates are good)

Thanks

It's your total income (e.g. including interest from savings) over the full tax year that matters. And don't forget that you may be able to make use of increased pension contributions to reduce your taxable salary so that you remain as a basic rate taxpayer - there's many way of paying pension contributions, so you'd need to check what method you use and whether it would help.

Edit --- https://www.moneysavingexpert.com/savings/personal-savings-allowance/ may be of help.

Dazed_and_C0nfused

siggs said:

Sorry if this has been answered before!

I'm planning ahead for next tax year and whether I need an ISA. In October 2023 I will get a pay rise and will go into the higher tax band (just - I will be £30 into the higher band!).

It's not clear if this means my PSA is reduced to £500 automatically? Or if it stays at £1000 because across the whole tax year my total earnings remain below £50,270? (I'm aware come 2024/2025 I will be solidly in the higher rate tax for the full year so PSA will reduce, just wanted to maximize savings in the next tax year whilst rates are good)

Thanks

It's your taxable pay (often less than salary due to pension contributions) plus any taxable interest and any other taxable income which counts.

You have to start by checking if you would be a higher rate payer ignoring the savings nil rate (aka PSA).

If you are higher rate using that calculation then you get up to £500 taxed at 0%.

And interest taxed at 0% is still taxable income and counts towards your adjusted net income so can increase any High Income Child Benefit Charge payable.

Daliah

If you are going to be a HR tax payer, putting as much as you can into an ISA obviously makes sense. But you have until a few days before the end of the tax year to use your 2022/23 allowance. Just don’t leave it too late.

But as has been mentioned, check whether you can use pension contributions to your advantage

siggs

Many thanks @Notepad_Phil for this suggestion, a quick google and I noted that salary sacrifice reduces taxable salary. I know I do pay some extra pension via salary sacrifice so this could keep me in a lower rate. Need to investigate further but really handy to know, thanks.


Thanks everyone else for input too 

Dazed_and_C0nfused

siggs said:

Many thanks @Notepad_Phil for this suggestion, a quick google and I noted that salary sacrifice reduces taxable salary. I know I do pay some extra pension via salary sacrifice so this could keep me in a lower rate. Need to investigate further but really handy to know, thanks.


Thanks everyone else for input too 

Salary sacrifice for pension contributions is very simple for tax purposes, you've never had the salary in the first place so you never need to tell HMRC about it, you just get a lower taxable pay figure on your P60.

Relief at source pension contributions don't reduce your taxable income but they do increase your basic rate band so can be as tax efficient overall.  But they don't save you any National Insurance which is why, for most people, salary sacrifice is the better option if available.

ranciduk

Please can someone clarify my situation.

im currently working full time, but plan to quit work early April next year. Then I will have zero income, no wages, no benefits and no pension 

then in July and again in November, I will have fixed bonds maturing that will give me about £3,500 in interest.

i don’t think I would have to pay any tax on this £3,500? But I’m not 100% certain

could someone put my mind at ease?

Thanks!

Notepad_Phil

ranciduk said:

Please can someone clarify my situation.

im currently working full time, but plan to quit work early April next year. Then I will have zero income, no wages, no benefits and no pension 

then in July and again in November, I will have fixed bonds maturing that will give me about £3,500 in interest.

i don’t think I would have to pay any tax on this £3,500? But I’m not 100% certain

could someone put my mind at ease?

Thanks!

If this is interest then it just depends on how much salary you'll be receiving between your last payslip in March and when you retire in April as that is likely to be taxable in the next tax year - but it's unlikely you'll have to pay any tax on that interest unless you've got an annual income in the hundreds of thousands.

For instance, Mrs Notepad has an annual income just below the personal allowance and she wouldn't be charged tax on £3500 of interest.