Probably a dumb question but please humour me

Froglet

I have not paid any tax for years and therefore have always filled in the declaration so that I receive gross interest on savings .
Now that plan has changed,which I knew about,but I got a letter from HMRC which didn't explain what I need to know.I am way off earning enough to pay tax,i receive a small state pension and an even smaller private one.
My personal allowance on savings interest is £1,000,but I have earned more than that since the scheme changed last year.I have been putting every matured account into an Isa,but I will still receive over the limit again this coming year.
But if I have about a £4000 gap between what I earn and my personal tax allowance,will this more than cover it ? I am assuming it will but I need clarification please.
Thank you.

kidmugsy

Froglet wrote: »

... if I have about a £4000 gap between what I earn and my personal tax allowance, will this more than cover it ? I am assuming it will but I need clarification please.

From gov.uk

(i) "Personal Allowance
You can use your Personal Allowance to earn interest tax-free if you haven’t used it up on your wages, pension or other income."

I think that answers your question. But there's more:

(ii) "Starting rate for savings
You may also get up to £5,000 of interest tax-free. This is your starting rate for savings.

The more you earn from other income (for example your wages or pension), the less your starting rate for savings will be.

If your other income is £16,500 or more
You’re not eligible for the starting rate for savings if your other income is £16,500 or more."

And also:

(iii) "Personal Savings Allowance
You may also get up to £1,000 of interest tax-free depending on which Income Tax band you’re in. This is your Personal Savings Allowance."


https://www.gov.uk/apply-tax-free-interest-on-savings

Dazed_and_confused

You have misunderstood how the tax system works.

Firstly there is no £1000 "allowance", the Personal Savings Allowance is simply a 0% tax rate.

Unless your income exceeds £16000 (previous tax year) you will not be able to benefit from the Personal Savings Allowance.

The first £11000 of your taxable income is tax free courtesy of the Personal Allowance and then upto another £5000 of savings interest can be taxed at the starter savings rate which is another 0% tax band.

Note the £5000 savings rate band would be reduced for every pound of salary/pension etc you earn over the £11000 Personal Allowance so if your salary/pension reached £16000 you would not get the savings rate band but would still be entitled to the Personal Savings Allowance rate band.

You may want to reconsider what you do when future accounts mature. I'm not saying what you are doing is wrong but you may be doing it under a misapprehension of the current tax system.

kidmugsy

Dazed_and_confused wrote: »

You have misunderstood how the tax system works.

If you mean me, I am quoting the ruddy gov.uk website.

If you mean the OP, then it would be best not to mislead him on the size of the Personal Allowance.

Dazed_and_confused

Kidmugsy

I meant the op, your post wasn't there when I started my reply

Froglet

All figures in my post relate to the last complete tax year, 2016:17

RG2015

kidmugsy wrote: »

If you mean the OP, then it would be best not to mislead him on the size of the Personal Allowance.

Could you clarify what you mean by misleading the op please?

[Deleted User]

RG2015 wrote: »

Could you clarify what you mean by misleading the op please?

The current personal allowance is 11500, not 11000 which, as dazed has clarified, refers to 2016/17 tax year..

Froglet

Thanks everyone.I understand how it works now.So,hubby pays tax but he would still have a good margin of tax free interest( he doesn't pay much) ? Am I understanding that correctly?

Keep_pedalling

When you say you are transferring maturing savings accounts into ISAs I hope you don't mean cash ISAs, they have been pointless for most people, and certainly for non tax payers, for a long time now.

Froglet

Only because I wasn't sure about being taxed on the interest,and also because I can move the money if a better account comes along.I do still have long term fixed accounts giving us monthly income,it is just that 2 or 3 of the best ones matured this year.And in fact the rates they gave for a further fix were no better than the Isa I have them in.If interest rates rise I will be better placed to reinvest.We can but hope!

Dazed_and_confused

Thanks everyone.I understand how it works now.So,hubby pays tax but he would still have a good margin of tax free interest( he doesn't pay much) ? Am I understanding that correctly?

Quote possibly but without any real facts it's impossible to say for certain. Some would consider paying £1000 tax as not much but in that situation it would normally mean only £1000 of savings interest (as an absolute maximum) would be taxed at 0%.

Whereas paying say £200 tax on job or pension income could easily mean savings interest of £5000 would be taxed at 0%