Personal Savings Allowance

Doffydel

My income is less than my Personal Allowance of £11,850 and I am transferring £1,190 to my husband via the Marriage Allowance, which leaves me with £300 worth of allowances. I have bank interest for this year of £202. HMRC have changed the tax code of my small pensions so that I am paying tax and they are taking no notice of the Personal Savings Allowance of £1000 which applies to "standard rate taxpayers". Has anyone else experienced this ?

Dazed_and_confused

HMRC have changed the tax code of my small pensions so that I am paying tax and they are taking no notice of the Personal Savings Allowance of £1000 which applies to "standard rate taxpayers". Has anyone else experienced this ?

I think you are under a few misapprehensions about your tax affairs.

Firstly the Personal Savings Allowance is not of any use to low income individuals. You cannot use it I'm afraid.

Because you have no need to.

You would need income of more than £15,660 in the current year before the Personal Savings Allowance (actually a 0% tax rate) applied to you.

You have your reduced Personal Allowance of £10,660 and then the savings starter rate of tax where upto £5,000 of taxable interest is taxed at another 0% tax rate.

Only after that is used up does the savings nil rate (aka PSA become relevant.

So in the situation you outline you cannot even use the savings starter rate of tax. The savings income is covered by your Personal Allowance. You don't even reach the threshold to be taxed, even at one of the 0% tax rates.

I also think you have misunderstood your new tax code(s). If you have spare Personal Allowance it is quite normal for HMRC to show that your interest has used some of these allowances. That does not mean you will necessarily be paying tax as a result.

HMRC have changed the tax code of my small pensions so that I am paying tax

Can you tell us, for each pension, what the new tax code is for 2018:19 and how much you expect to receive from that pension in 2018:19 (given we are right at the end of March you probably have very accurate figures for each pension).

Hammer_Time

I also paid a small amount of tax because of my savings interest caused my tax code to be reduced. I phoned the tax office stating that because I was on a low pension they should use some of the £5000 for saving interest so my tax code is higher than my pension. The advisor I spoke to said computer said no and he has never heard of this allowance. I believe some advisors know of this and some don’t. I did sort it out when I phoned back and spoke to a different advisor.
Hope this helps.

Dollardog

Hello, my pension and s/e income bring me just below the personal allowance for tax purposes usually.

This year however, I have received a PPI payout on which just over £900 was stopped for tax.
Am I right in thinking that when filling in my tax form, I put the interest payment down and I will probably not get the £900 odd back?

xylophone

I have received a PPI payout on which just over £900 was stopped for tax.

See

https://www.litrg.org.uk/latest-news/news/180502-had-ppi-claim-and-low-income-if-so-read

Dazed_and_confused

Am I right in thinking that when filling in my tax form, I put the interest payment down and I will probably not get the £900 odd back?

No. You have to declare the interest (approx £4,500) but if your other income is as you describe then you would be overpaid by £900.

You might not get all £900 back, that depends on how much, if any, national insurance is payable as part of your Self Assessment calculation.

Unless you have other interest you are unlikely to be able to use the savings nil rate (aka PSA) but your interest will be taxed at the savings starter rate of 0%.

If your pension/self employment is slightly more this year then you may be able to use the savings nil rate but either way you probably don't owe any tax on the interest so will be £900 better off in your Self Assessment calculation.

Dollardog

My pension amounts to around £8000 and part time S/e earnings around £5000. As Dazed and confused said above, the interest paid to me was around £4500. I don't have NI to pay as I am over the age to pay it and get state pension - included in above. I do pay around £3000 into a SIPP to get the tax relief.

Dazed_and_confused

So with £13,000 pension and profits you would be paying £230 tax on that income (£13,000 - £11,850 = £1,150 x 20%).

That leaves you with £3,850 of the savings starter rate and £1,000 of the savings nil rate so if your total interest (from the PPI and any normal taxable savings interest) was no more than £4,850 then it would all be taxed at 0%.

So your Self Assessment calculation would be something like £230 due less £900 paid at source (PPI tax) = £670 refund due. And nothing to pay in January 2020.

The pension contribution doesn't save you any personal tax but does of course get the 25% uplift from the pension company (courtesy of HMRC).

This all assumes you aren't Scottish resident for tax purposes and haven't applied for Marriage Allowance.

Dollardog

Thank you so much for your help. It is much appreciated. x