Tax on savings on receipt of pension

Downthedrain

My wife has a private pension of £8000 per year, no state pension at present. Her personal allowance is £11,310 (due to marriage allowance to me).  What is the maximum amount she can earn in interest on savings before being taxed? I'm not clear on how the £5,000 Starting Rate for Savings applies in this instance.

Dazed_and_C0nfused

Assuming you have disclosed all relevant information, the £8,000 is for the full tax year and the interest isn't going to take her to higher rate territory then it's £9,310 before she pays tax on the interest.

NB.  She is taxed above £3,310 but at 0% on the first £6,000.

Which is in this specific order.

£3,310 unused Personal Allowance

£5,000 savings starter rate (0%)
£1,000 savings nil rate (0%)

Which means her tax code will be reduced down to 800N if she has £3,310 or more interest.

If she has say £1,700 interest her tax code would be reduced from 1131N to 961N.

Dazed_and_C0nfused

Just to add, once her state pension starts she will lose all of the savings starter rate band.

For example if she got the standard new State Pension at today's rates she would have pension income of £17,627 so the whole £5,000 would be lost.

Downthedrain

The HMRC online checker returns "You do not need to send a self assessment tax return" with the following information:

1. Did you work for yourself between 6 April 2021 and 5 April 2022?
    No
2. Did you work as an ‘off-payroll worker’?
    No
3. What was your total income for the year?
    Less than £50,000
4. Did any of your income come from UK property or land?
    No
5. Did you get more than £10,000 from dividends or savings and investments?
    No
6. Do you need to pay tax on any of the following?
    None of these
7. Do you need to pay any Capital Gains Tax?
    No
8. Did you hold a position that affects how you’re taxed?
    No

Can you clarify why this would be the case - how would the tax code alter without a self-assessment?

Dazed_and_C0nfused

I don't know what relevance Self Assessment has, unless her interest exceeds £10,000.

Her tax code can be amended for countless reason.

Do you understand the impact of tax code 800N (or 961N for example) on her pension?

Downthedrain

I haven't considered a change in tax code - I didn't expect any impact on her pension - would you explain? If not self-assessment, what is the mechanism for reporting interest to HMRC? I was self-employed until this year, so my interest was recorded via self-assessment.

Dazed_and_C0nfused

Banks and building societies send details of interest paid to HMRC after the end of each tax year.

For people not completing Self Assessment returns HMRC use those figures when reviewing the year that has just ended and as an estimate for the current tax year.

Tax code 800N means tax is deducted when the monthly pension payment exceeds £667.41.  Or £8,009 annually.

My wife has a private pension of £8000 per year

Downthedrain

I hadn't realised the banks did a return.

Am I correct in thinking that the tax would be deducted at zero rate if the interest received was less than that outlined in your original reply, even if the code was reduced to 800N? If allowances don't change, is it likely that her code would be 800N next year and due to pension increases her pension would be incorrectly taxed (even if interest income is below the maximum allowed)? My apologies in asking these basic questions, but it's difficult to get a clear understanding just by looking at the HMRC web site.

Dazed_and_C0nfused

No, if her interest was say £4,000 and pension was £8,300 (and she didn't have any State Pension) then her tax code would 830N.

The untaxed interest would be using the spare tax code allowances.

Albermarle

Downthedrain said:

The HMRC online checker returns "You do not need to send a self assessment tax return" with the following information:

1. Did you work for yourself between 6 April 2021 and 5 April 2022?
    No
2. Did you work as an ‘off-payroll worker’?
    No
3. What was your total income for the year?
    Less than £50,000
4. Did any of your income come from UK property or land?
    No
5. Did you get more than £10,000 from dividends or savings and investments?
    No
6. Do you need to pay tax on any of the following?
    None of these
7. Do you need to pay any Capital Gains Tax?
    No
8. Did you hold a position that affects how you’re taxed?
    No

Can you clarify why this would be the case - how would the tax code alter without a self-assessment?

She can check what is happening ( to some extent) via her Personal Tax account, which you need to register to see online.
You can even request a new tax code, if you give a valid reason.

Downthedrain

Thanks for the replies. We checked online and this resulted in a lengthy phone call to HMRC due to a number of issues;

1. Her tax code was incorrect.

2. She was on an emergency tax code (even though this does not show on her pay slip)

3. HMRC is still waiting for bank interest returns.

4. HMRC had never updated her records with her P45 to show she finished work 9 years ago.

Overall an exasperating conversation - the adviser could not offer answers and said my wife would just have to wait and see if things get sorted out "on their own."