£5k starting rate for savings

clivep

ANGLICANPAT wrote: »

Thanks everyone. ( and thank you xylophone for those helpful links)
I have applied the rules as I understand them in post 8 and I think HMRC has overcharged me . ( My savings income was £1964)
From my their assessment letter to me.

Total Income received £12,375
Minus personal allowance of £11,000
Total income on which tax is due £1375
Savings interest from banks ,bsoc, securities etc
Starting rate £0...... x0% ......... = 0
Nil rate £1000 x0%..........= 0
Basic rate £369 x20% ........= £73.80
Dividends £6 x0% ........=0

Income tax on which tax has been charged £1375 Tax Due £73.80

I dont understand why the £73.80 tax isnt covered by what remained from the £5000 savings starting point that is talked about.

Was this for the 2015-16 tax year? Their systems back then were still been applying a 10% Investment Starting Rate on interim assessments after it had been reduced to 0%.

I have an assessment from August 2015 for a tax refund on a lump sum pension withdrawal made after April 2015. It held back tax chargeable of £89.90 being 10% on £899 estimated interest. I knew it should be zero but waited until I did the end of year tax return and sure enought got this amount refunded.

Dazed_and_confused

It is for 2016:17. You may want to read the later posts.

ANGLICANPAT

Dazed_and_confused wrote: »

So are you saying Im not due to pay any tax as it happens, but wouldnt get the £1000 personal savings anyway for some reason ?

Correct. You cannot get the Personal Savings Allowance on such on a low income.

Which HMRS link helps me work all this out for myself ?

Does this link help? It puts the relevant elements into order.

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

Im still at a loss with this one. I wrote to HMRS basically saying please could they check this demand again as I believed they had given me the £1000 allowance I WASNT entitled to, but hadnt given me the £5000 allowance I WAS entitled to in which case I wouldnt owe any tax. Their reply is below , verbatim.

"Thank you for for your letter regarding the 2016/2017 tax calculation we received on 5 Dec.
Please note that you would only be eligible for the 5000 allowance if your income was this amount higher than the personal allowance.
In your case your income is £12,375 which is why you have the £1000 allowance on the calculation. This means that the amount of £369 is taxable and has been taxed at 20%. The remainder of £6 is below the threshold to be taxed. Therefore I can confirm that the amount of tax due is correct. "

xylophone

https://www.taxation.co.uk/Articles/2017/05/02/336348/tax-relief-savings-and-dividends

It is a matter for concern that HMRC’s systems are not correctly geared up for these changes. Two instances have been identified in which the software does not correctly calculate the personal savings allowance and the dividend allowance.

The first is when non-savings income does not exceed the personal allowance and the starting rate for savings, and savings income is not entirely covered by the personal savings allowance. In this instance, the software does not give the starting rate for savings.

ANGLICANPAT

The advice is to submit a paper return. Thats what mine was anyway . As they are denying there's an error, I think I will send another letter contesting their response, quoting the relevant paragraphs but also sending a cheque for the demanded amount (since its small) to avoid any fines being started up if they take till beyond Jan 31st to sort it out.

xylophone

See also

https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim1112

Where an individual’s non-savings income is less than the starting rate for savings limit, the savings income will be taxable at the 0% starting rate for savings up to the limit. From 6 April 2015 the starting rate for savings limit is the individual’s personal allowances plus the starting rate band of £5,000.

[Deleted User]

I thought I understood and now I really am unsure. If anyone can advise, thank you, and please excuse my confusion.

My pensions all together (State and work) total for 2017 to 2018 tax year should amount to a tiny amount under £14,425 for the whole tax year and I don't count the interest on my ISA. I can live comfortably within my means and rely on my savings and interest for extras. How much more interest am I allowed to 'earn' before paying additional tax? I am not eligible for means tested benefits and my outgoings are low.

I have NS&I interest due in January, and again in March I think, and I receive two lots of £3 every month from two different bank Reward current accounts. My ISA interest is in April. I had a matured NS&I Granny Bond earlier this year and it's all gone now.

If anyone can advise how much interest, apart from ISA, I am allowed in total, before having to pay more tax I would be able to understand better. Is it £1,000 for the tax year or a different amount?

Some time ago I worked it out and made a note to myself. My figure was £585 tax to be paid for the year and this was about the same amount (divided by 12) I pay from my work pension every month.

I thought if I was a basic rate tax payer I would be all right. Now I am quite mixed up in case I will owe tax depending how much interest I receive from NS&I in January and March 2018. Thank you for any advice.

Crimson

bowlhead99

Deleted_User wrote: »

My pensions all together (State and work) total for 2017 to 2018 tax year should amount to a tiny amount under £14,425 for the whole tax year

I receive two lots of £3 every month from two different bank Reward current accounts.

OK, so you receive £14425 of pension and £72 of fixed contractual rewards from the banks for the year, which is a total of £14497 of non-interest income.

You can afford for that income to be 'topped up' with interest income of £3003, taking you to a gross amount of £17500 for the 2017/18 tax year before any tax is due on your interest.

Basically you get
- your annual personal allowance of £11500,
- then the next £5000 on top of that is charged at 0% if it's savings interest income or 20% if it's non-interest income (pensions, salary, self-employment, royalties and £3pm fixed bank rewards, etc)
- you also have a £1000 personal savings allowance.

So your pensions and bank rewards will come up to £14497 which is £11500 tax free and £2997 at 20%. Then you can have another £2003 of interest income charged at 0% before hitting the £5000 limit in which interest income can be charged at the special rate of 0%. Then you still have the £1000 personal savings allowance that everybody gets if they need it and are not a higher rate or top rate taxpayer.



Footnote -
I'm assuming your interest income is only a few thousand quid. But if you have millions of pounds of cash savings, and your interest income from it was several tens of thousands of pounds, so that you reached the high rate (40%) income tax bracket, your £1000 personal savings allowance would be reduced to a £500 personal savings allowance.

As a basic rate person you should be OK to have the full £1000 PSA if you need it. If your interest income was under £2003 it would all be covered by the '0% starting rate for savings income' and you wouldn't need the £1000 PSA.

As you mention, ISA income is irrelevant and ignored.

AlwaysLearnin

Minor point, as doesn't make much difference, but the reward payments might already be net of basic rate tax, e.g. Halifax:

https://www.halifax.co.uk/bankaccounts/current-accounts/reward-current-account/#collapse1-1499459832070

"When we pay you the £3 Reward we are required by legislation to pay tax of £0.75 to HMRC on your behalf, so the gross reward is £3.75. The tax paid is 20% (current basic rate of income tax) of the gross amount. If you are a higher rate or additional rate taxpayer it is your responsibility to pay any additional tax due."

bowlhead99

AlwaysLearnin wrote: »

Minor point, as doesn't make much difference, but the reward payments might already be net of basic rate tax, e.g. Halifax:

Yes you will be right on that. So really instead of getting £72 a year of non-interest income from the bank in their two accounts, the person is getting £90 of non-interest income and the necessary 20% tax on it has been deducted at source.

So compared to the figures in my example, there is really an extra £18 gross taxable income being received over the course of the year... which means there is £18 less 'headroom' in which to earn interest income before further tax must be paid.