Tax on Savings

LadyKatey

I understood that savings interest, unless it was over a stupid amount, should be tax free.  

My husband Has  retired and gets only retirement pension.  he asked HMRC to transfer the balance to me under the Marriage Tax Allowance.  After many, many months they have confirmed this has been done.  However, the notification states 

Personal Allowance.    £12570
transfer of allowance.  £  1260
TOTAL.                        £13830
less untaxed interest.  £.   346

Apparent this is an estimate we will receive on our savings…….so it’s being taxed!

Can anyone help, please?  Surely this can’t be right?

tightauldgit

How much do you earn because your income affects how much tax free savings interest you can receive.

Dazed_and_C0nfused

Apparent this is an estimate we will receive on our savings…….so it’s being taxed!

You have clearly stated it is being taxed.  Are you certain about this?

Just out of interest how much is his "retirement pension" and who pays this?  Do you mean his State Pension paid by DWP or is it a pension company or former employer?  Or does he get two pensions, the State Pension and another?

He would only be taxed on savings interest if his taxable income, including the interest, exceeded £18,570. 

LadyKatey

Sorry,I obviously haven’t explained this very well.
husband gets only state pension (circa £9600 pa)
I have a private pension of circa £7200 pa plus Income based ESA approx £4700pa as I have cancer. 

They transferred me £1260 of his allowance
 notice looks like this

personal allowance.        12570
transfer of allowance.        1260
total.                                 13830
Less ESA.                           4772
less untaxed interest.           346
total tax free amount.         8712

I really dont understand how they aren’t essentially taxing our savings

Dazed_and_C0nfused

So if your tax code allowances are £8,712 and your pension, which the allowances are used against is only £7,200 how are you paying tax?

Who is deducting this tax you claim to be paying??

LadyKatey

Thank you.  I get this but I really don’t understand why they even include this “untaxed interest” element at all.  If I receive an increase in my pension it would mean that my tax free allowance would only be £8712 and not £9058.  Essentially taxing me on my interest 

Dazed_and_C0nfused

Your tax code is based on the latest information.

And at the moment that is that you have spare tax code allowance which are being used by the interest.

If your pension income was estimated at say £10,000 then there wouldn't be a deduction for the interest in your tax code as it would fall to be taxed at the savings starter rate (0%).

And I'd that wasn't available to you then it would be the savings nil rate (also 0%).

You are really worrying about something that is having no impact on you at all.  Unless your pension income changes of course.

molerat

It is one of those weird things that HMRC do which causes endless confusion.  If you do not use up all of your allowance with income they will fill the gap with any interest even if it falls within one of the 0% bands.  It doesn't mean you will actually pay any / more tax.

LadyKatey

Thank you all so much.  There really must be a much simpler way to convey this information to ordinary people without all the nonsense double talk.  So much for their policy of clear speech .
First time here and REALLY appreciate the information 

Bigwheels1111

Does look confusing.
I called to ask about tax on savings as if rates go up a bit more I will get 8-12k in interest.
I can earn 15k in interest a year without tax, but need to fill out a tax return if over 10k.

zagfles

LadyKatey said:

Thank you all so much.  There really must be a much simpler way to convey this information to ordinary people without all the nonsense double talk.  So much for their policy of clear speech .
First time here and REALLY appreciate the information 

Just be aware that if your pension/ESA does go up you might end up paying tax which you shouldn't need to. The way HMRC do this is totally pointless, they reduce the tax codes of people not expecting to use up their allowance but then if they do use it up, they end up getting taxed too much.

On your personal tax account you can give an estimated income, so if income goes up it's worth updating it.