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making use of the personal savings allowance

edited 30 November -1 at 1:00AM in Savings & Investments
16 replies 1.1K views
swanseajack47swanseajack47 Forumite
11 posts
MoneySaving Newbie
edited 30 November -1 at 1:00AM in Savings & Investments
I want to make use of my annual £1000 personal savings tax allowance for 2019-20. I am going to open a one year fixed rate income bond. If I choose for the interest to be annual then obviously that won't do it because the interest will be paid after April 2020. However, if I choose monthly interest, and the interest is added to the investment, will that do it? The provider has said I can have a P60 next April showing how much interest has been added over the remainder of the 2019-20 tax year. Presumably HMRC will accept that as proof of savings income for this financial year?
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Replies

  • surreysaversurreysaver Forumite
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    A P60 is related to your income from employment, not interest from savings. If you earn monthly interest, then interest earnt this tax year counts towards this year's allowance. Interest earnt next year counts towards next year's allowance.
    I consider myself to be a male feminist. Is that allowed?
  • Terry_TowellingTerry_Towelling Forumite
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    You don't take advantage of your Personal Savings Allowance (PSA) per se, you just get to keep all of the interest that is paid to you during any given tax year as long as that interest totals less than the PSA. If you are a Basic Rate Taxpayer (BRT) your PSA would be £1000. Do you anticipate being paid any more than £1000 in interest this tax year - or, indeed, in any tax year?

    Something that would be interesting to know is what is your salary. People on incomes less than £17,500 pa (this tax year) can get the benefit of something known as the 'starting rate for savings' before they need to worry about the PSA. That could provide up to £5000 tax-free interest before you even get to start on your PSA.

    You could even put your money into a cash ISA instead - they pay interest that is always tax-free (under current legislation)
  • Dazed_and_confusedDazed_and_confused Forumite
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    Terry T makes a good point.

    People with lower income cannot make use of the Personal Savings Allowance (actually a 0% tax rate).

    Are you working, getting a pension, running a business? If so how much income do you expect to get in 2019:20?
  • Terry_TowellingTerry_Towelling Forumite
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    Just read some old posts from OP. Seems they are on pension income, and they may have experienced some confusion over the way HMRC chooses to reduce your Personal Allowance by your expected pension incomes and then allocates any unused PA to cover potential savings interest. That confused me when I first came across it.
  • AnotherJoeAnotherJoe Forumite
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    This came up a few weeks ago and there was no conclusion
    My thought is that since you can not access that interest because it's fixed term, then you can't put it down. Some others thought that was incorrect and you should . Would like to see a HMRC ruling on this.
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
  • Terry_TowellingTerry_Towelling Forumite
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    AnotherJoe wrote: »
    This came up a few weeks ago and there was no conclusion
    My thought is that since you can not access that interest because it's fixed term, then you can't put it down. Some others thought that was incorrect and you should . Would like to see a HMRC ruling on this.

    Are you referring to the tax year to which you allocate your savings interest when an account paying annual interest spans more than one tax year?

    The issue also exists for monthly interest accounts. Should monthly interest paid in April (after 6th) be counted entirely against the new tax year despite the fact that some of it was 'earned' the previous tax year?

    If it were correct to apportion it, surely HMRC would have told savings account providers to do this when they report and when they prepare our interest statements - but they don't. We'd also be receiving confusing interest statements for accounts where none has yet been paid.

    Apportioning would also require Joe Bloggs to do some maths - some of which could be quite complex on monthly-interest accounts if the account had a lot of activity around the tax-year change-over and I can't see that being expected - or happening - or many people being capable of it.
  • Zero_SumZero_Sum Forumite
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    My thinking is, its taxable when its actually received (think VAT works like this)

    Put it this way, Im on an anually salary & paid on 21st. In April what Im taxed is based on the rules in that tax year even though the 1st 5 or 6 days of my pay relates to the previous tax year. There's no adjustment in my April pay to take account of the difference in personal allowance. What I get in April is the same as I get in May & June etc.
  • edited 17 May 2019 at 11:41PM
    swanseajack47swanseajack47 Forumite
    11 posts
    MoneySaving Newbie
    edited 17 May 2019 at 11:41PM
    Thank you all so much for your helpful comments. To give a bit more detail. I'm retired with both state pension and occupational pension, and am a basic rate taxpyer. I've put the maximum amount allowed in an ISA for 2019-20, but also have some other savings that I could put into a one year fixed income bond and that would generate approximately £1000 gross interest. I have a choice of annual interest being added and paid out at the end of the one year term, or of interest being added to the investment on a monthly basis. I don't appear to have any choice about nominating my own bank a/c into which the interest is paid monthly. ... but the interest can be added monthly to the investment. My question is as to whether HMRC would recognise the total of all the monthly interest income up until the end of the financial year as meeting the conditions for the annual PSA, or whether they would object on the basis that the monthly amounts were being added to the investment and thus could not be accessed by me until the end of the fixed term, and consequently that they would audit the interest as counting towards the 2020-21 PSA, not the 2019-20 PSA. I've rung them to ask, and they were rather equivocal about it .. i.e. they didn't seem to be able to answer the question. They did, however, mention a certificate of unearned income from the provider as being something they might consider, and the provider has indicated that they could supply one upon request. So I'm none the wiser really and am wondering if anyone has an answer. There is the possibility of one provider that will divert monthly income from a fixed term bond into my nominated bank account, however, the rate of return is currently very unappealing. Many thanks again.
  • LobsterMemoryLobsterMemory Forumite
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    Very surprised that there doesn't seem to be anything definitive but surely it must work the same way as everything else - dividends, salary, VAT etc is that the tax is chargeable when you receive the amount - and for a fixed bond paid monthly that'll be monthly. Just because you can't get at it doesn't mean it isn't in your account.

    Anyway, why not just go for the yearly option -

    you'll pay no tax this year as you've had no income.
    When the bond matures next year, that is £1000 of interest so no tax
    Then put the principal in a new ISA and any interest earned in the rest of the year is tax exempt
  • LobsterMemoryLobsterMemory Forumite
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    Then put the principal in a new ISA and any interest earned in the rest of the year is tax exempt

    Oh, and if the principal is more than the ISA limit, chuck it in another fixed term bond that doesn't pay interest until after that tax year
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