Tax code reduced due to savings interest

Mike564

Hello. My tax relief has been reduced by a couple of hundred quid due to interest received on savings. I find this amazing as I’ve only got about 20 grand in savings accounts. I thought there wa

Mike564

....continued ( bloody touch screens!) I thought there was a 1000 quid tax threshold on savings interest? There’s no way I’ve earned more than this on my savings

phillw

It depends on how much income tax you pay.
You get £1000 savings tax free if you are on basic rate, £500 if you pay higher rate (40%) & there is no allowance for additional rate (if you earn more than £150,000 per year)

Mike564

I’m retired and earning approximately 12 grand a year

RG2015

What is your tax code? It may be that the change is purely technical and would not affect the amount of tax you pay.

Mike564

I have a tax code for each pension I’m receiving (4 in total) . The total allowance has recently changed from 12500 to 12271. The change is explained on the HMRC website as “Untaxed interest on savings and investments” This is limiting the amount I can pay myself from my pensions without paying any tax

RG2015

@Mike564
See the information on the link below. You may be able to benefit from the starting rate for savings of up to £5,000. You will see though that this is reduced by other income with a limit of £17,500.

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

Mike564

Thanks for that. It clarifies that on my (basic rate) tax band I should be able to earn £1000 interest on savings tax free. I still don’t understand why they have changed my PAYE tax free allowance. 

Chiphazzard

I'm a basic rate tax payer and any interest I receive on savings is minimal. I was wondering, does it mean that I can add the Personal Savings allowance (£1000 for me ) to my other allowances therefore reducing the whole amount of tax I pay?

RG2015

Chiphazzard said:

I'm a basic rate tax payer and any interest I receive on savings is minimal. I was wondering, does it mean that I can add the Personal Savings allowance (£1000 for me ) to my other allowances therefore reducing the whole amount of tax I pay?

Unfortunately, no. The personal savings allowance only applies to personal savings.

RG2015

To be more precise, this is from the HMRC website.

Interest covered by your allowance

Your allowance applies to interest from:

• bank and building society accounts
• savings and credit union accounts
• unit trusts, investment trusts and open-ended investment companies
• peer-to-peer lending
• trust funds
• payment protection insurance (PPI)
• government or company bonds
• life annuity payments
• some life insurance contracts

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