Personal Savigs Allowance

deal_seeker

I phoned HMRC today to get my tax code changed as they were deducting an amount for untaxed interest from my tax code estimated on figures from 3 years ago. The new figure will be approx £300 for the next tax year.
When I queried the fact that a basic rate tax payer can earn £1000 interest a year tax free so why were they taking the £300 off my tax code I was informed that this was correct. The lady went so far as to say that ALL interest from banks and building societies is taxable.
She couldn't explain to me how the £1000 personal savings allowance works.
I am totally confused now. Any body else had this message from H M R C  or can explain to me so I understand.
Thamkyou

Dazed_and_C0nfused

All interest (unless genuinely tax exempt like from an ISA) is taxable.

But you have the Personal Allowance, savings starter rate (upto £5,000 taxed at 0%) and savings nil rate (upto £1,000 taxed at 0%) before any tax is payable on it.

If you have earnings or pension income which uses up the Personal Allowance and savings starter rate then the savings nil rate comes into play.

What do you estimate your earnings or pension for 2022:23 will be?

deal_seeker

Hi I would estimate it will be £10600 next tax year.

refluxer

"If you earn less than £18,570 a year from income and savings interest, then all your savings interest is tax-free thanks to tax-free savings and the starting savings rate."

https://www.moneysavingexpert.com/savings/tax-free-savings/ is worth a read

deal_seeker

Thats exactly what I thought.
So in future would  I have to claim the tax back each year ?

Dazed_and_C0nfused

deal_seeker said:

Thats exactly what I thought.
So in future would  I have to claim the tax back each year ?

Really not sure what you're talking about?

If your earnings or pension is £10,600 and your tax code allowances have been reduced by £300 for the interest why do you think you will be paying tax???

Is your tax code higher than 1059/L/M/N?

Descrabled

HMRC appear to be very late this tax year as both Ms Descrabled and myself have just this month had our tax code changed for this year because of interest received being updated. She has tax back whilst my tax has increased marginally.

deal_seeker

I am just trying to get my head round this for the future.
My pension and interest from investments will be higher in 12months.
Therefore if my higher savings interest is deducted from my tax code, I will be taxed monthly on my increased pension income as this will be above remaining tax code although still under personal tax allowance.
So if I am only paying tax on pension due to decreased tax code caused by savings interest  I assume this has to be claimed back as I have the personal savings allowance etc.

Dazed_and_C0nfused

Nothing you have posted so far suggests you have enough taxable income to be able to utilise the savings nil rate band (aka Personal Savings Allowance).

If your pension was say £12,400 then you would only have £170 spare allowances.  Your tax code would be reduced to 1240L and you would pay no tax on your pension. 

Interest above £170 would be taxed under the savings starter rate of 0% i.e. no tax to actually pay.

If your interest exceeded £5,170 then you could use the savings nil rate band.

deal_seeker

Descrabled said:

HMRC appear to be very late this tax year as both Ms Descrabled and myself have just this month had our tax code changed for this year because of interest received being updated. She has tax back whilst my tax has increased marginally.

When I called them today they were using figures from 2020 for closed accounts for tax year 2021/22 & projected forward for next tax year. They would remove them only if I gave them account numbers sort codes and dates closed.

Wheres_My_Cashback

deal_seeker said:

Descrabled said:

HMRC appear to be very late this tax year as both Ms Descrabled and myself have just this month had our tax code changed for this year because of interest received being updated. She has tax back whilst my tax has increased marginally.

When I called them today they were using figures from 2020 for closed accounts for tax year 2021/22 & projected forward for next tax year. They would remove them only if I gave them account numbers sort codes and dates closed.

And even once you've advised them of closures they won't necessarily remove them from their estimates.

I currently have an ongoing complaint ref old accounts (which they've been advised of as being closed) being used to estimate future interest income.