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TERRIBLE TIME WITH HMRC. DOUBLED MY INTEREST ON SAVINGS

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Comments

  • zagfles
    zagfles Posts: 21,254 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Chutzpah Haggler
    We also have HMRC issues over untaxed interest. As I understand it everyone has a £1,000 tax-free allowance against untaxed interest. Why then do HMRC keep deducting 'untaxed interest' of a few hundred pounds from my wife's tax code notification meaning she doesn't get her full personal allowance even though she has never been anywhere near earning £1,000 of interest in any tax year? This seems to happen every tax year and takes a lot of faff to sort out.
    We have raised this with HMRC and was supposed to have a reply within 3 weeks but that deadline came and went about a fortnight ago and there seems to be no progress on it.
    There is no "allowance" for interest.  There are two 0% tax bands though for interest.

    I suspect you are concerning yourself about something which is actually correct and has no impact on your wife.

    If her earnings/pension income is less than her Personal Allowance then the rest of her unused Personal Allowance will be used up by the interest, hence the tax code deduction.  Perfectly normal and correct in most instances.

    She can only make use of the £1,000 savings nil rate band (aka Personal Savings Allowance) if her total taxable income exceeds a minimum of £16,310 (often £17,570).

    What is her tax code and how much do you expect her to get paid in the current tax year by the employer/pension company who are using the tax code?  The taxable pay figure which will be shown on her P60.
    No, no she is taking an amount from her SIPP to make maximum use of her tax-free personal allowance and should pay no tax. But because, in her notice of coding, HMRC are deducting several hundred pounds of 'untaxed interest', she ends up being charged tax where none should be payable. The interest should not be taxable as it is well within the £1000 allowance and should not be reducing her personal tax allowance meaning she is paying tax.
    I do not at all see why you say "the rest of her unused Personal Allowance will be used up by the interest, hence the tax code deduction.  Perfectly normal and correct in most instances."
    Why is that normal at all? She should be paying no tax and I dont see why her personal allowance is being affected by untaxed interest which should not be taxed anyway?


    All she needs to do is update her estimated income from the SIPP on her Personal Tax Account and a new tax code will be calculated removing the interest deduction.

    Unfortunately with modern pensions where people can take money as and when they want it is tricky for HMRC to accurately estimate her future pension income.

    If they think it will be £12,570 then no coding deduction (for interest) would be required.

    And I'm still not convinced she is actually in a position to be able to utilise the savings nil rate band (aka Personal Savings Allowance).  I think it is much more likely that her interest will be taxed under the savings starter rate band (also 0%).
    So what? Why are you so obsessed with the technicalities of which 0% band someone's interest falls into? Whether it's covered by their personal allowance, the starter rate band, or the PSA, the end result is the same, no tax is due on the interest. Someone with employment/pension income below or at the personal allowance can earn at least £6000 interest before any tax is due. If they earn less than that, who cares what bands the interest falls into. Is there some obscure circumstance where it actually matters whether the PSA or starter rate comes first?
    But in the PPs case, with a SIPP and a few hundred of interest, HMRC don't need to estimate her future pension income. They just need to set a code totally ignoring interest. Then the correct amount of tax will be deducted regardless.
  • andy_poulton
    andy_poulton Posts: 109 Forumite
    Part of the Furniture 10 Posts Combo Breaker
    Wow so I am not alone then. Thanks for the post
    Cheers Andy
  • green_man
    green_man Posts: 545 Forumite
    Tenth Anniversary 500 Posts Name Dropper
    I have a similar issue, and I’m getting my personal allowance reduced due to predicted savings interest. It’s all very well saying “I doesn’t matter” ,  it does matter because HMRC seem to then use this code to reduce your tax free amount thus you start paying tax at when you shouldn’t.

    I also have a P55 outstanding, currently 5 weeks without even starting to look at it. When I did a P55 claim back in February it was fully processed within the target 3 week timeframe.   In addition my SIPP withdrawal taken in mid April is not even showing on my tax account, having chased this with my SIPP provider they insist that HMRC were informed of the payment on the day the payment was made.

    it seems the HMRC is somewhat creaking at the seams st the moment!
  • zagfles
    zagfles Posts: 21,254 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Chutzpah Haggler
    green_man said:
    I have a similar issue, and I’m getting my personal allowance reduced due to predicted savings interest. It’s all very well saying “I doesn’t matter” ,  it does matter because HMRC seem to then use this code to reduce your tax free amount thus you start paying tax at when you shouldn’t.

    I also have a P55 outstanding, currently 5 weeks without even starting to look at it. When I did a P55 claim back in February it was fully processed within the target 3 week timeframe.   In addition my SIPP withdrawal taken in mid April is not even showing on my tax account, having chased this with my SIPP provider they insist that HMRC were informed of the payment on the day the payment was made.

    it seems the HMRC is somewhat creaking at the seams st the moment!
    Their agents must manually deal with tens of thousands of incorrectly taxed people because of interest being taken off tax codes. It would cost a tiny fraction of that to fix the problem in PAYE software, just treat people expected to earn below the PA the same as those who earn above it for interest purposes, ie pretend they can actually use the PSA. In the same way as they pretend marriage allowance recipients or higher rate taxpayers who pay into a SIPP have a higher PA.
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