Confusion over PSA

Rheumatoid

My mum is 80 and only gets state pension plus a small (? £70/month) widows pension. She has savings not in an ISA that result in about £900 interest per year. I presume she is not subject to tax on this? I am not clear about PSA for non earners.
Thanks
R.

Dazed_and_confused

She cannot benefit from the PSA as it is only of use to higher earners (higher in comparison to your mum).

You haven't told us her State Pension but basically she has her Personal Allowance of £12,500 and she then gets the savings starter rate of tax where upto £5,000 of taxable interest is taxed at a 0% tax rate.

If her pension income exceeds £12,500 this savings starter rate band is reduced pound for pound by any pension income (or wages) which exceed £12,500.

So if pension income was say £14,000 the savings starter rate band is only £3,500.

The Personal Savings Allowance (actually another 0% tax band) only applies after that.

If her pension income is less than £12,500 then some, or all, of her savings interest wouldn't need to be taxed as it is covered by spare Personal Allowance.

Rheumatoid

Thanks D&C

will get precise numbers off her and check.

R.

Dazed_and_confused

Ultimately unless she has the countries largest ever State Pension she won't have tax to pay on her savings interest but it could be for a variety of reasons (or mix of all three!)

1). Spare Personal Allowance
2). Taxed at savings starter rate of 0%
3). Taxed at savings nil rate (aka PSA) of 0%

Dazed_and_confused

And if she has spare Personal Allowance then she can expect to see an interest deduction in her tax code. But this shouldn't be making her pay tax.

Any confusion about her tax code (is that what prompted the original post?) just post the details.

Rheumatoid

Thanks D&C

no tax issue yet but just trying to make sure we don't have to deal with one.

I don't think there is an issue as she only gets the following:

£735.93 State pcm
£97 Abbey life pcm (widows pension from my dads pension)
£80 savings interest pcm

No other sources of income.

R.

Dazed_and_confused

State Pension cannot be paid monthly.

Have you converted it to a monthly amount or is that the 4 weekly figure?

Rheumatoid

Dazed_and_confused wrote: »

State Pension cannot be paid monthly.

Have you converted it to a monthly amount or is that the 4 weekly figure?

Figure she gave me - presumably from a statement. She said it had just gone up to 735.93. I just assumed that was per month. Don't know the payment frequency.

R.

Dazed_and_confused

I would say in that case it's likely to be the 4 weekly amount.

And that would make her tax code look something like this,

Personal Allowance £12,500
Less State Pension £9,567
Less interest £960
Tax code allowances £1,973
Tax code 197L

Abbey life pension income is £1,164 so no tax will be deducted if tax code 116L or higher is used.

Dazed_and_confused

And to answer your original question, no she cannot use the Personal Savings Allowance. Or the savings starter rate of tax.

Unless she starts to get a fair bit more taxable interest.

bowlhead99

Dazed_and_confused wrote: »

And to answer your original question, no she cannot use the Personal Savings Allowance. Or the savings starter rate of tax.

People sometimes get unnecessarily worried if they are told they cannot do something. While you are completely correct in that she cannot use that allowance or that special starter rate, it's perhaps more helpful to say she doesn't need to use that personal savings allowance or the special rate to avoid tax on her interest... because she doesn't have enough income to go over the standard personal allowance.

FWIW, the original question was not 'can she use the PSA or special starter rate', but was 'I presume she is not subject to tax on this?'.

The answer is 'she does not need to pay tax on this'.