My only income is from savings interest - how much can I get tax free? £18,570 or £12,570?

KovaK

Hello

Looking for some help please!

I don't work, am not receiving any benefits and am not on a pension so the only income I have is from savings interest.

I know there is a Personal Allowance of (usually) £12,570 and I know there is a starting rate for savings of up to £5,000 and a Personal Savings Allowance of up to £1,000

I initially assumed that I could earn up to £12,570 + £5,000 + £1,000 = £18,570 without paying tax on savings interest.

Then I read something, somewhere that suggests the starting rate of £5,000 and Personal Savings Allowance of £1,000 only kick in if you are earning a wage.
The implication was that I would only get £12,570 of savings interest tax free.

There's quite a difference between £18,570 tax free and £12,570 tax free so I was wondering if anyone knows the definitive answer to this.
Most of the stuff I've read on it assumes you are working and have savings interest.
But I only have savings interest.

Any help or clarification would be greatly appreciated! 

Regards

Kova

eskbanker

KovaK said:

I initially assumed that I could earn up to £12,570 + £5,000 + £1,000 = £18,570 without paying tax on savings interest.

....which is the correct answer (assuming no edge cases like marriage allowance transfer)!

https://www.moneysavingexpert.com/savings/tax-free-savings/

KovaK

eskbanker said:

KovaK said:

I initially assumed that I could earn up to £12,570 + £5,000 + £1,000 = £18,570 without paying tax on savings interest.

....which is the correct answer (assuming no edge cases like marriage allowance transfer)!

Thanks for your reply!

I had a look at this and it states "if you earn less than £18,570 a year in income and savings interest combined* so this really applies to the more common case I mentioned where you earn an income and supplement it with savings interest.

There was information on another site (can't remember it!) that suggested that if your only income was savings interest then the starting rate for savings and Personal Savings Allowance didn't apply.

Common sense would dictate that this should also apply to an income just from savings interest but I've never read anything specifically for those circumstances. It's always been earnings AND savings income.

I was hoping that someone might who is in a similar position might be able to clarify.

Obviously, I'm hoping you are right, but it contradicts what was inferred elsewhere!

Regards

ivormonee

KovaK said:

There was information on another site (can't remember it!) that suggested that if your only income was savings interest then the starting rate for savings and Personal Savings Allowance didn't apply.

Really? What sort of site was that! As per eskbanker, all three apply in your case.

Dazed_and_C0nfused

KovaK said:

eskbanker said:

KovaK said:

I initially assumed that I could earn up to £12,570 + £5,000 + £1,000 = £18,570 without paying tax on savings interest.

....which is the correct answer (assuming no edge cases like marriage allowance transfer)!

Thanks for your reply!

I had a look at this and it states "if you earn less than £18,570 a year in income and savings interest combined* so this really applies to the more common case I mentioned where you earn an income and supplement it with savings interest.

There was information on another site (can't remember it!) that suggested that if your only income was savings interest then the starting rate for savings and Personal Savings Allowance didn't apply.

Common sense would dictate that this should also apply to an income just from savings interest but I've never read anything specifically for those circumstances. It's always been earnings AND savings income.

I was hoping that someone might who is in a similar position might be able to clarify.

Obviously, I'm hoping you are right, but it contradicts what was inferred elsewhere!

Regards

If you remember could you post a link?

EthicsGradient

"income and savings interest combined" applies to you. Your income from employment, pension etc. is zero; you have savings interest. If the MSE wording isn't straightforward enough for you, HMRC says:

"You can use your Personal Allowance to earn interest tax-free if you have not used it up on your wages, pension or other income.

You may also get up to £5,000 of interest and not have to pay tax on it. This is your starting rate for savings.
...
You may also get up to £1,000 of interest and not have to pay tax on it"

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

KovaK

EthicsGradient said:

"income and savings interest combined" applies to you. Your income from employment, pension etc. is zero; you have savings interest. If the MSE wording isn't straightforward enough for you, HMRC says:

"You can use your Personal Allowance to earn interest tax-free if you have not used it up on your wages, pension or other income.

You may also get up to £5,000 of interest and not have to pay tax on it. This is your starting rate for savings.
...
You may also get up to £1,000 of interest and not have to pay tax on it"

eskbanker said:

KovaK said:

I initially assumed that I could earn up to £12,570 + £5,000 + £1,000 = £18,570 without paying tax on savings interest.

....which is the correct answer (assuming no edge cases like marriage allowance transfer)!

Thanks for all your replies, much appreciated!

I did look at the HMRC website but thought the wording there was also slightly ambiguous, hence my post here.

They state:

If your other income is less than £17,570, your starting rate for savings is a maximum of £5,000. 

The mere fact that they state other income could suggest that the starting rate for savings is only applicable if you actually have other income. To put it another way, the HMRC statement seems to suggest that the starting rate for savings is conditional on have other income. I don't have other income, in this context so am I entitled to the starting rate for savings?

Do you get why I might construe that statement as ambiguous... or am I just being overly cautious and picky?

I've been looking for the other website which cast doubt on the £18,570 tax free amount if only savings income is considered. No luck finding it yet...

Just wish there was a definitive, non-ambiguous explanation somewhere for someone living off savings interest only!

Dazed_and_C0nfused

You are overthinking it.

The facts are that your other income (taxable non savings non dividend income is what counts) is £0.

Which means you can have the following taxable interest without having any tax to pay.

£12,570 - unused Personal Allowance
£5,000 - unused savings starter rate (taxed at 0%)

£1,000 - unused savings nil rate (taxed at 0%)

The £12,570 becomes £11,310 if you have applied for Marriage Allowance.

Dazed_and_C0nfused

Just wish there was a definitive, non-ambiguous explanation somewhere for someone living off savings interest only!

There are no special rules for someone who only has taxable income from interest.  The exact same rules apply to them as the rest of the population.

soulsaver

Can you get £2k in dividends free of tax on top of the £18.57k? Or does it reduce the calcs somehow?

Dazed_and_C0nfused

soulsaver said:

Can you get £2k in dividends free of tax on top of the £18.57k? Or does it reduce the calcs somehow?

You can have £2,000 of dividend income taxed at 0%.

Dividend income doesn't impact the savings starter rate band.