Tax on savings

Ade99

Hi,

I have a question about tax on savings and apologies in advance as i'm sure similar has been asked many times before but i'm struggling to get my head around it.

As a basic rate tax payer, if I earned £3k in savings interest in this tax year, is it correct to say that so long as the sum of my gross salary plus the £3k savings interest is less than the higher rate tax bracket I won't pay any tax on the savings?

If that's incorrect would someone mind please giving me an example of how it would be calculated out using £3k interest and any salary between £25k gross to £40k gross and i can adjust it for my circumstances.

Many thanks!
Ade.

Bigwheels1111

If I understand it correctly, £1000 tax free, £2000 taxed at 20% = £400 tax.
£500 tax free if over 40k earnings. £500 tax.

JGB1955

AIUI at £25K gross you're way beyond the limit of £12570 +(up to) £6,000 nil savings rates. 

jimexbox

Basically if your earnings and interest is below £18,570, you would pay no tax on your interest. Includes starting saving rate and personal savings allowance. 

If you earn over 18,570, you'd only be eligible for the 1k tax free personal savings allowance. 

Ade99

Thank you all.  So £1k is tax free, then 20% tax on the other £2k, therefore £400 due in tax. 

Am I correct in thinking that HMRC would then adjust my tax code for the next tax year to gradually reclaim that £400 over 12 months rather than them asking for £400 from me as a one-off payment?

Ocelot

Ade99 said:

Thank you all.  So £1k is tax free, then 20% tax on the other £2k, therefore £400 due in tax. 

Am I correct in thinking that HMRC would then adjust my tax code for the next tax year to gradually reclaim that £400 over 12 months rather than them asking for £400 from me as a one-off payment?

Yes, that is correct. 

They've been doing it to mine for 5 years. Unfortunately, the lowered tax free allowance takes me into the higher rate bracket and I have to pay 40% on my savings.

Dazed_and_C0nfused

Ade99 said:

Thank you all.  So £1k is tax free, then 20% tax on the other £2k, therefore £400 due in tax. 

Am I correct in thinking that HMRC would then adjust my tax code for the next tax year to gradually reclaim that £400 over 12 months rather than them asking for £400 from me as a one-off payment?

Not quite, it may not make any material difference in most cases but it is £1,000 taxed at 0%.

If you were liable to pay HICBC, had adjusted net income of £100k or claimed Married Couple's Allowance then that £1,000 would impact those things.

In most cases it works on a 3 year cycle.

Year 1, say 2022:23, the interest is earned.
Year 2, 2023:24, the interest is reported to HMRC and they send you a calculation showing any extra tax due and amend your tax code to start collecting extra tax for 2023:24 (this is not collecting anything owed for 2022:23)

Year 3, 2024:25, your tax code is reduced to pay the amount owed from 2022:23

If the tax owed cannot be collected via your tax code you would need to pay the tax direct to HMRC 3 months after they send you the calculation (but no earlier than 31 January after the end of the tax year the tax is owed for).

subjecttocontract

When I've filled in my self assessment form I've always been given the option wether I want any tax due to be collected via my tax code of wether I want to pay the tax due in a lump sum. 

Dazed_and_C0nfused

subjecttocontract said:

When I've filled in my self assessment form I've always been given the option wether I want any tax due to be collected via my tax code of wether I want to pay the tax due in a lump sum. 

That's for Self Assessment, there is no option with PAYE (which is what the op seemed to be, no mention of completing Self Assessment returns).  

HMRC determine if unpaid tax can be collected via your tax code or not.

Mrs-3D

I’m confused, I’m 60 not claiming a pension but have given up work as I have savings to live on, do I pay tax on my savings if I am unemployed and don’t claim benefits or a pension?

refluxer

Mrs-3D said:

I’m confused, I’m 60 not claiming a pension but have given up work as I have savings to live on, do I pay tax on my savings if I am unemployed and don’t claim benefits or a pension?

As I understand it, most people can earn up to £18,570 a year in combined income and savings interest before they start paying tax.

Have a read of this https://www.moneysavingexpert.com/savings/tax-free-savings/