PSA limit

Dazed_and_C0nfused

Lindagreenacre said:

On Martin Lewis's TV programme, he keeps stating that you do not pay income tax on the first £1,000 interest if you are a basic rate taxpayer.  I think that it should be clearer, that is if I understand correctly.  I am a pensioner and my pension is well below the £12,500 personal allowance.  However, I have savings interest, which is more than £1,000 per annum.  This still does not take me over the £12,500 + £1,000 nil tax on interest.  Am I correct in thinking that I should not pay income tax?

Correct, you should not pay income tax but it has absolutely nothing to do with the savings nil rate (aka Personal Savings Allowance) as you do not have sufficient income to make use of the savings nil rate

You have to have used all your Personal Allowance and the savings starter rate (0% like the savings nil rate) before the savings nil rate can be used.  As your pension income is less than the Personal Allowance then you have the full savings starter rate band available before you are able to use the savings nil rate band.

The savings starter rate is upto £5,000 interest taxed at 0%, so for low income individuals it can be much more beneficial than the savings nil rate band.

If you have the correct mix of pension/earnings, interest and dividends you can currently have taxable income of £20,500 without actually having any tax to pay.

Caprimoon8

I checked on Money helper and I understood that you could earn 12570 plus 5000 plus 1000. Total 18570- basically I was told by chat person that anything between 12570 and 18570 you earn would be taken off the interest you are allowed to earn tax free.  DOes that make sense .  Have I understood this correctly? So say I earnt 15400 in income then I could earn 3170 in savings interest? It is so confusing though

xylophone

Let's say  Mary Black's only non savings income is her salary of  £15,400 a year.

She will pay income tax at 20% on (£15,400 - £12,570).

Now she can consider her savings interest.

The starter rate for interest on savings is £5000.

That starter rate is reduced by the amount of earned income over £12,570 - therefore she can receive £2170  in interest tax free.

On top of that, she can use the Personal Savings Allowance so she can receive another £1000 in interest tax free.

Thus in her particular case, she can receive a total of £3170 in tax free interest.

Dazed_and_C0nfused

Caprimoon8 said:

I checked on Money helper and I understood that you could earn 12570 plus 5000 plus 1000. Total 18570- basically I was told by chat person that anything between 12570 and 18570 you earn would be taken off the interest you are allowed to earn tax free.  DOes that make sense .  Have I understood this correctly? So say I earnt 15400 in income then I could earn 3170 in savings interest? It is so confusing though

No, that is wrong 

The £5,000 savings starter rate is reduced pound for pound by any taxable non savings non dividend income above your Personal Allowance.  But the savings nil rate band is only reduced if you are a higher (or additional) rate payer.

So with taxable earnings of £15,400 and Personal Allowance of £12,570 you will have £2,170 of the savings starter rate band left (0% tax rate).

And you will have the £1,000 savings nil rate band (also 0% tax rate).

If your taxable earnings had been say £20,000 you would lose all the savings starter rate band but would still have the £1,000 savings nil rate band.

Also, Cash ISA's generate tax free/tax exempt interest, interest from other accounts will all be taxable.  It's just that some (or all) might be taxed at 0%.  Or covered by your Personal Allowance.

The figures above assume you haven't applied for Marriage Allowance.

eskbanker

xylophone said:

Let's say  Mary Black's only non savings income is her salary of  £15,400 a year.

She will pay income tax at 20% on (£15,400 - £12,570).

Now she can consider her savings interest.

The starter rate for interest on savings is £5000.

That starter rate is reduced by the amount of earned income over £12,570 - therefore she can receive £2170  in interest tax free.

On top of that, she can use the Personal Savings Allowance so she can receive another £1000 in interest tax free.

Thus in her particular case, she can receive a total of £3170 in tax free interest.

It often comes across as pedantic, but it's not "tax-free" as such (in the way that ISAs are), it's taxable interest that's taxed at 0%....

Bazzalona13295

So is it as simple (in some cases) as if your income is less than the £12,570 you get an 'extra' 5k allowance to go with the requisite 1k?

As that is the situation I am in.

Dazed_and_C0nfused

Bazzalona13295 said:

So is it as simple (in some cases) as if your income is less than the £12,570 you get an 'extra' 5k allowance to go with the requisite 1k?

As that is the situation I am in.

You don't get any extra allowance at all.

But if your non savings non dividend income is less than your Personal Allowance (either £11,310 or £12,570) then you have the following things available that will minimize the tax due on any interest.  They are used in this specific order.

1.  Any unused Personal Allowance.

2.  £5,000 savings starter rate band (income taxed at 0%)

3.  £1,000 savings nil rate band (income taxed at 0%)

Bazzalona13295

Dazed_and_C0nfused said:

Bazzalona13295 said:

So is it as simple (in some cases) as if your income is less than the £12,570 you get an 'extra' 5k allowance to go with the requisite 1k?

As that is the situation I am in.

You don't get any extra allowance at all.

But if your non savings non dividend income is less than your Personal Allowance (either £11,310 or £12,570) then you have the following things available that will minimize the tax due on any interest.  They are used in this specific order.

1.  Any unused Personal Allowance.

2.  £5,000 savings starter rate band (income taxed at 0%)

3.  £1,000 savings nil rate band (income taxed at 0%)

Thankyou. 

xylophone

It often comes across as pedantic, but it's not "tax-free" as such (in the way that ISAs are), it's taxable interest that's taxed at 0%..

But tax free" can also mean "free of tax"........