Tax confusion

Banger696

Hi


Some confusion has crept into my mind about savings and tax. I am currently in receipt of ESA (contribution based) and inherited savings of £150k from my late mother. I have split this into two and put it in Paragon Bank and Charter Savings both 2 year fixed rate savings accounts. I get the interest monthly from the 2 accounts and that helps me to get by.


As far as I am aware the 2 accounts are not taxed at source and my personal allowance is around £11k.



Do I have to pay tax on the interest from these 2 accounts taking into account my ESA payments. A rough calculation still leaves me way under the £11k threshold.


Any advice?

System

Contributions based ESA is a taxable benefit so would need to be taken into account.

Income related ESA isn't taxable however having £150k in the bank would exclude you from qualifying for it.

Banger696

Yes I know that. That is not the question, the question is do I pay tax on the interest from Charter and Paragon because it will be over £1000pa or not because it is under my £11k personal threshold?

polymaff

Depends on your benefit income.

Depends on any other income you may have.

Depends if the savings accounts are ISAs.

You are allowed to allocate your Personal Allowance among your various types of income as you see fit*. This will affect whether you use your other allowances - including your (could be £1,000) Personal Savings Allowance.

*If you use self-assessment HMRC will do this for you.

xylophone

You need to consider your non savings income and your savings income when calculating how much of your interest can be tax free.

Download the Savings and Dividends fact sheet here

https://www.litrg.org.uk/tax-guides/other-tax-issues/savings-and-tax

Banger696

I have the definitive answer from HMRC. As long as it is under my personal allowance of £11k then I shouldnt pay tax on that and the banks should inform HMRC.

polymaff

Banger696 wrote: »

I have the definitive answer from HMRC. As long as it is under my personal allowance of £11k then I shouldnt pay tax on that and the banks should inform HMRC.

You know, there's little point in you posting on MSE if you ignore the advice you are given.


Believe it or not, you'll get more accurate advice on income tax from folk on here than you will from HMRC - even if you've asked them the right question.

Dazed_and_confused

I have the definitive answer from HMRC. As long as it is under my personal allowance of £11k then I shouldnt pay tax on that and the banks should inform HMRC.

Banks don't deduct tax from interest anymore, even if you were liable to pay 46% tax on it.

Whilst it is true that you would have no tax to pay on the interest if your total taxable income was less than your Personal Allowance (currently £11,850 unless you have applied for Marriage Allowance) it is equally true that you could have income of £17,850 and still not have any tax to pay because of the two 0% tax rates currently in place.

In your second post you refer to £1000. Presumably a reference to the so called Personal Savings Allowance. Did HMRC advise you that you are not able to benefit from this as you have insufficient income?

Banger696

My word were what about the PA on Savings as I will have 1500 on one savings interest, he said it doesnt matter as it all comes under the 11,850 which I will be well under.

short_butt_sweet

so long as your total taxable income (contribution based ESA + savings interest + anything else) in the tax year is under the PA, you don't pay any income tax.

even if the total is over PA, you still might pay nothing - though that's more complicated. but if it's definitely under the PA, we can skip that bit (unless you're interested).

davidwatts

I'm interested!

If my only taxable incomes are money I choose to draw down from my pension plus savings interest how much interest can I earn tax free if I choose to take my tax allowance (£11,850) from my pension pot?

Put another way, am I correct in thinking I wouldn't pay tax if I took that amount from my pension and earned less than £5k in interest?