Tax free savings

Just_caring

I always thought you could only earn  £1000 tax free on your savings and above that is taxed but reading some posts on here it appears not, can someone please confirm I’m reading it correctly, my scenario is I’m taking income from a private pension at £12500 to keep me under the personal allowance so I don’t pay tax and have a mix of savings in ISAs and one year savings accounts which has kept me under the £1000 with the low interest rates, I’ve just had a I yr bond mature and was going to split between an ISA & savings account to keep me below the £1000 but ISA rates are lower than savings so can I put it all into savings as I appear to also have a £5000 savings allowance?

paul235

Yes as your income is below £17570 you have £5000 of the starting rate for savings remaining.
https://www.gov.uk/apply-tax-free-interest-on-savings

Dazed_and_C0nfused

You can't use the £1,000 nil rate band (aka PSA) until you have used any available Personal Allowance and savings starter rate band.

Which would be £70 and £5,000 from what you've posted.

savit4l8er

You do. If anyone knows the process for setting this in motion so your tax code is not messed up regularly, it may help you. The reason I mention it is because I have found on more than one occasion, my tax code has been reduced simply because of some interest being paid which was inside of the £1k allowance. A telephone call easily had the code amended back but all I was told was something along the lines of " it must have been the way the interest was declared by the institution involed". You will receive tax certificates etc. to work it all out but it would be nice if HMRC knew your income (the £12500) and could ignore the interest thereafter until you have reach the limit(s).  Maybe that is the case but if anyone is actively in this position, their input would be useful. 
I may find myself trying to do it one day and the £5k will be swallowed easily but it's a start alongside other tax free options. 

Albermarle

So you can put it all in non ISA accounts, assuming no likely change to your taxable income in the coming years.

Just_caring

Albermarle said:

So you can put it all in non ISA accounts, assuming no likely change to your taxable income in the coming years.

Good question… 

Dazed_and_C0nfused

savit4l8er said:

You do. If anyone knows the process for setting this in motion so your tax code is not messed up regularly, it may help you. The reason I mention it is because I have found on more than one occasion, my tax code has been reduced simply because of some interest being paid which was inside of the £1k allowance. A telephone call easily had the code amended back but all I was told was something along the lines of " it must have been the way the interest was declared by the institution involed". You will receive tax certificates etc. to work it all out but it would be nice if HMRC knew your income (the £12500) and could ignore the interest thereafter until you have reach the limit(s).  Maybe that is the case but if anyone is actively in this position, their input would be useful. 
I may find myself trying to do it one day and the £5k will be swallowed easily but it's a start alongside other tax free options. 

You have been told an absolute load of rubbish by HMRC.

Your tax code was revised because you had spare Personal Allowances and they had to be used before the savings starter rate can be used.  And the savings starter rate has to be used before the savings nil rate (aka PSA) can be used.

For example if your pension income was expected to be £12,500 and this was all from one company (and you hadn't applied for Marriage Allowance) your tax code might be 1257L.  But if you had more than £70 in taxable interest it would be reduced to 1250L as £70 of your Personal Allowance would be used by the interest.

Tax code 1250L and pension of £12,500 = no tax deductions.

llewpugh

My wife has a current total income of £9055 made up of State Pension and small company pension - she has transferred £1260 of her allowance to me under current regulations. Am I correct in thinking that she can earn a total of £8255 in savings interest before paying any tax at current levels of income? My assumption is made up of the following - PA £12570 minus transferred allowance of £1260 = £11310 - Allowable total income is £17570 - £1260 - £9055 = £7255 + £1000 PSA = £8255. Are my assumptions correct please? as if so I can take more advantage of higher rates on Non ISA savings products to generate more income. Also, why would my tax code be 360N? I am aware that N denotes transferred Marriage allowance but I thought code would be 1130L or thereabouts.

Dazed_and_C0nfused

llewpugh said:

My wife has a current total income of £9055 made up of State Pension and small company pension - she has transferred £1260 of her allowance to me under current regulations. Am I correct in thinking that she can earn a total of £8255 in savings interest before paying any tax at current levels of income? My assumption is made up of the following - PA £12570 minus transferred allowance of £1260 = £11310 - Allowable total income is £17570 - £1260 - £9055 = £7255 + £1000 PSA = £8255. Are my assumptions correct please? as if so I can take more advantage of higher rates on Non ISA savings products to generate more income. Also, why would my tax code be 360N? I am aware that N denotes transferred Marriage allowance but I thought code would be 1130L or thereabouts.

Something has gone seriously wrong somewhere!

Based on total non savings non dividend income of £9,055 your wife can earn £8,255 in interest before any tax would be payable on it.

Interest of £8,255 would be taxed as follows,

£2,255 covered by spare Personal Allowance then

£5,000 taxed at 0% (savings starter rate) finally

£1,000 taxed at 0% (savings nil rate)

The above assumes you have calculated her State Pension correctly. A common mistake here is to take her regular payment and multiply it by 12 but State Pension is paid 4 weekly (or weekly) not monthly.

Also, why would my tax code be 360N? I am aware that N denotes transferred Marriage allowance but I thought code would be 1130L or thereabouts.

A tax code suffix of N indicates you have applied for Marriage Allowance.  Given the current level of your wife's income I'm not sure why you would do that?

If you typed that in error and you are the recipient of Marriage Allowance (M tax code) then remember you don't get any extra allowances, you get a fixed deduction of your tax liability.

If you also receive State Pension then a tax code of 1130 would be very unusual.  360 far more common.

For example tax code allowances £13,830 less State Pension £10,230 (which is untaxed at source) = tax code allowances 3600 = tax code 360L/N/M.

llewpugh

Thanks for your reply Dazed_and_C0nfused - you have confirmed more or less what I thought with regard to how much more interest can be earned before incurring tax. I understand this changes when if and when income (pensions in this case) exceeds remaining allowances (£11310 after transfer of 10% of allce).

Sorry for the confusion with regard to the Tax code as it should of said that my wife has transferred 10% of her personal allowance to me - my mistake and thus tax code appears correct.