Personal Savings Allowance

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  • Dazed_and_C0nfused
    Dazed_and_C0nfused Posts: 12,735
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    edited 11 July 2022 at 6:24PM
    Atwill said:
    Oh dear! So many variations on what should be a simple theme - how to calculate income tax excluding interest of any kind. and how separately to calculate tax that might (depending on financial circumstances) be due.

    Martin Lewis's MSE website (and a host of other equally reputable and reliable sources) explained, very explicitly with easy to understand examples, how both sides of the equation work. 

    Until a few days ago I (nor any of my far better-informed friends) knew nothing of the £5,000 0% tax Starting Savings Rate.

    Now in my late 90's I have learned just about all there is to know, short of a well-kept secret by HMRC for either ignoring it, or misusing it. 

    I will hold my tongue hereon until I have received their explanatory details of why they want more tax from me (as I, Mr Lewis, and hosts of other financial experts believe) than they are legally entitled to.  
    I hardly think you can call it a secret when it is specifically mentioned on the gov.uk page which deals with taxation of interest 

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

    You could always post the full income details from one of the R40's you have completed and then it should be possible to highlight why you have (apparently) underpaid tax.
  • RG2015
    RG2015 Posts: 5,755
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    edited 11 July 2022 at 7:31PM
    Atwill said:
    To prove my point about this huge misunderstanding about interest allowances, according to Mr Lewis MSE web, I could earn £2000 in interest tax free based on an income of £16,570.

    According to HMRC calculator I should pay £1000 tax instead of £800, an overcharge of £400.

    Can I please get some further confirmation from other savers using this forum that HMRC are ripping us off?
    This has been bugging me so I wanted to show that the £5,000 is included in the calculation. This is based on salary of £12,570 and gross interest income of £6,000.

    £1,000 of the interest is covered by the PSA so has been excluded as per the accompanying notes.

    Here are the results showing that there is no tax due.


  • Atwill
    Atwill Posts: 21
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    On Page 3 of this blog, I used the following income and tax entries for simplicity's sake, but are within a few pounds of actual figures on one of my R40s

    Total before tax £16570, including Savings Interest £675 (0 tax) and Bond Interest £325 gross.
    Total tax paid £665, (£600 deducted from PAYE company pension, £65 deducted from Bond interest)
    Total interest paid Bank, Bldg Soc etc £1000, includes £325 paid gross by Bond.
    Total tax paid on that £1,000 was £65, i.e from Bond interest payment 
    Gift Aid £0

    My calculations:
    Deduct PA of £12,570 from £15,570 (excl interest) leaves £3,000 @ 20% = £600.
    This is what my P60 shows for tax on income from State Pension and Company Pension, as determined by Tax Code for that year.

    For tax due on Savings use Personal Allowance £12,570 + £5000 Starting Savings Rate + £1000 PSA
    That amounts to £18,570 - the savings allowance threshold for zero tax  (confirmed by MSE web)
    My total including savings of £16,570 is £2,000 less than that threshold, and since my savings were £1,000, not only is this fully covered by it, but leaves a further £1,000 remaining within the threshold, so allowing recovery of the £65 deducted by the Bond provider. Indeed, I could have earned a further £935 of interest still without incurring tax.

    Feel free to disagree if you see it any other way; I have simply used the examples for calculation methods given by MSE and other websites on this very topic, but using my own R40 figures as you asked.

  • Jeremy535897
    Jeremy535897 Posts: 10,371
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    If your earnings were £15,570 and your savings interest was £1,000, then the tax due is £600 on the earnings and you are due a refund of £65 being the tax deducted from interest. You don't need to do anything else. In the example calculation earlier you put in £16,570 earnings and £2,000 interest. You are using two different earnings figures. The £200 tax discrepancy is 20% of the extra £1,000 earnings.
  • I still don't think you have fully understood the savings tax bands.

    You could have earned an extra £2,000 in interest and only been charged 0% on it.

    For tax due on Savings use Personal Allowance £12,570 + £5000 Starting Savings Rate + £1000 PSA
    That amounts to £18,570 - the savings allowance threshold for zero tax (confirmed by MSE web)
    My total including savings of £16,570 is £2,000 less than that threshold, and since my savings were £1,000, not only is this fully covered by it, but leaves a further £1,000 remaining within the threshold, so allowing recovery of the £65 deducted by the Bond provider. Indeed, I could have earned a further £935 of interest still without incurring tax.

    But irrespective of that I agree that on the figures you have supplied and assuming that

    a) the tax year involved is 2021:22  and
    b) the £325 is definitely interest (and was declared as such on the R40)

    then you have overpaid £65 for that tax year.

    Nothing more you can do now but wait for the calculations.
  • RG2015
    RG2015 Posts: 5,755
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    Looks like we're getting there.

    @Atwill

    Hope this gets sorted to your satisfaction. Please let us know how you get on.
  • Atwill
    Atwill Posts: 21
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    Thanks RG2015, and others. Now a waiting game with HMRC. WIll let you know more of their calculations once I see them. According to their initial letter, they won't be to my satisfaction😒
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