Tax on savings

micklemuckle

If you are a basic tax payer and earning £ 12,000 per year with no other income could you earn £4,000 in savings  interest without paying tax. Thanks 

Dazed_and_C0nfused

Can you clarify, if you are earning £12,000 why are you a basic rate taxpayer?

Have you applied for Marriage Allowance?

25_Years_On

Yes you can. You have a savings allowance of £5000. This only reduces for income earned over the £12500 allowance.

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

micklemuckle

Dazed_and_C0nfused said:

Can you clarify, if you are earning £12,000 why are you a basic rate taxpayer?

Have you applied for Marriage Allowance?

Sorry , I'm not actually earning anything at the moment, my wife is earning about £12,000 so she's not paying any tax. Does that clarify , thanks

micklemuckle

25_Years_On said:

Yes you can. You have a savings allowance of £5000. This only reduces for income earned over the £12500 allowance.

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

That's great, much appreciated 

Dazed_and_C0nfused

So if you have no other income and haven't applied for Marriage Allowance then you can earn £18,570 in interest before any tax would actually be payable on it.

If your wife's only taxable income is £12,000 then she can earn £6,570 in interest before any tax would be payable on it.

£570 - spare Personal Allowance
£5,000 - savings starter rate (taxed at 0%)
£1,000 - savings nil rate (taxed at 0%)

oz0707

If you are basic rate with salary at optimum directors level and dividends up to basic rate does savings interest push you into higher rate or is it just taxed at 20% providing you're basic rate on other income?

Dazed_and_C0nfused

oz0707 said:

If you are basic rate with salary at optimum directors level and dividends up to basic rate does savings interest push you into higher rate or is it just taxed at 20% providing you're basic rate on other income?

Reading between the lines you could have spare Personal Allowance, the savings starter rate and savings nil rate to utilise before any 20% tax was payable.

But tax is all about the detail so some actual figures would be useful as it's not always straightforward with a bigger mix of income types

Dividends don't restrict the savings starter rate band though.

susanann_2

So if you have applied for the marriage allowance does that give you £18570 plus £1260 = £19830 before you have to pay tax if earning under £12570. Or if earning just over the £12570 can you add the marriage allowance to your personal allowance to do the calculation for that. Hope that makes sense
 

Dazed_and_C0nfused

susanann_2 said:

So if you have applied for the marriage allowance does that give you £18570 plus £1260 = £19830 before you have to pay tax if earning under £12570. Or if earning just over the £12570 can you add the marriage allowance to your personal allowance to do the calculation for that. Hope that makes sense
 

No, applying for Marriage Allowance means you have a reduced Personal Allowance so your starting point (before any income of any type is factored in) is,

Personal Allowance £11,310
Savings starter rate £5,000 (reduced if non savings non dividend income exceeds £11,310)
Savings nil rate £1,000

If you are the Marriage Allowance recipient then this has no impact at all as you aren't entitled to any additional Personal Allowance, you get a tax deduction of your overall tax liability.

So you have £12,570 + £5,000* + £1,000 

*with same caveat as above about it being reduced if non savings non dividend income is more than £12,570

susanann_2

So if your the recipient of the marriage allowance you can’t add it to your personal allowance. £12570 plus £1260 plus £5000 plus £1000 am I understanding correctly. If your the recipient it increases your personal allowance hence why you do it, but it can’t be used for the calculation. Seems strange as your increasing your personal allowance. I have been confused with this for awhile now.