Interest on savings allowance

itwasntme001

For the 20/21 tax year, if the only income is rental income and after deducting for allowable expenses the "profit" is less than 12.5k (but gross rent is more than 12.5k), would the interest on savings allowance be £5k (the starter rate for savings)?  So if interest was less than the 5k, no tax on savings interest would be payable?

Or would the allowable rental expenses need to be ignored and only the gross rental figure used to determine how much savings interest allowance would apply (so if the gross rent was more than 17.5k, the 5k starter allowance would not be allowed)?

Thanks

thegentleway

The second one. Don’t forget about £1k personal saving allowance though 

Dazed_and_C0nfused

The op isn't able to benefit from the £1k savings nil rate band (aka Personal Savings Allowance).

if the only income is rental income and after deducting for allowable expenses the "profit" is less than 12.5k 

The op will have some unused Personal Allowance to use before the savings starter rate applies.

You have to have taxable income of at least £17,501 (sometimes £16,251) before you become eligible to use the PSA, it isn't of any use to people with low(ish) income

itwasntme001

I am confused, so does allowable expenses reduce my taxable income and its this net income that determines allowances etc?  So in my case I would get the £5k allowance?

Dazed_and_C0nfused

Not quite.

There is only one "allowance" involved here, the Personal Allowance.

Your taxable profit determines how your rate bands are used and both the savings starter rate and savings nil rate are part of your basic rate tax band.

As your rental income hasn't used any of the basic rate band you get the full £5,000 savings starter rate band and if that was all used up you would then have the savings nil rate band (upto £1,000 taxed at 0%).

itwasntme001

So I need to use the income after deducting the allowable expenses from the gross rent in order to determine how much of the personal allowance and basic rate band I have used to determine how much of the savings starter and nil rate bands I am allowed?

I am confused because thegentleway seems to suggest I can not deduct allowable expenses to determine the bands.

Dazed_and_C0nfused

That is wrong.

If you check your Self Assessment tax calculations you will see that your tax liability is based on your taxable profit.

You can compare your previous returns and tax calculations and you will see that is your taxable profit i.e. rental income less allowable expenses, that is used.

The amount of savings starter rate band is restricted by any earned/pension income which uses up your basic rate band.  In this case that isn't happening so you would get the full £5,000 (if you have sufficient interest).

If your rental profits were £14,000 then you would have used £1,500 of your basic rate band so would only have £3,500 savings starter rate band available.

If you had rental profits of say £10,000 and a pension of £8,000 you would have no savings starter rate band available as your earned/pension income has used at least £5,000 of your basic rate band.

Once the savings starter rate band has been used you then have the savings nil rate band (aka Personal Savings Allowance) available and this is likely to be another £1,000 taxed at 0% (if you have sufficient interest).

itwasntme001

Thanks, I think I got it now.

When you say "That is wrong" I assume you meant what thegentleway said is wrong?

Dazed_and_C0nfused

Yes.  I am assuming his reference to "the second one" referred to this, which is wrong.

Or would the allowable rental expenses need to be ignored and only the gross rental figure used to determine how much savings interest allowance would apply (so if the gross rent was more than 17.5k, the 5k starter allowance would not be allowed)?

itwasntme001

Sorry just to clarify (more for completeness), in order to determine whether the starter rate would apply, does the total income (rental profits + savings interest) need to be less than 17.5k or just that the rental profits need to be less than 17.5k?

Dazed_and_C0nfused

It's any non savings non dividend income.  So things like wages, pensions, business profits and rental profits.