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

Dazed_and_C0nfused

ChilliBob said:

Indeed an interesting thread. My understanding of the total savings you could have was correct, which is good.

If you get say 5k of dividends in that same year (unwrapped) you will need to pay tax on 3k of them, 8.75% if you have no other earnings...? 

Does that interact with the total amount from savings? Ie is that total reduced by 3k to nearer 15k instead of 18k... Then if you had savings interest above the 15k it would be 20% tax on what's above. 

No, the savings starter rate is determined by your non savings and non dividend income.  So £5k of dividends wouldn't have any impact on it at all.

Assuming there is plenty of basic rate band left (the savings starter rate and savings nil rate both use some of this) then the dividends would be taxed,

£2,000 x 0% (dividend nil rate)
£3,000 x 8.75% (dividend basic rate)

From April 2023 the dividend basic rate is reducing back to 7.5%. 

Unless there is neither government U-turn 😳

ChilliBob

Okay cool makes sense. My return for the last tax year was rather bland - a little interest, a little dividends, but all well below the thresholds.

Next year, well that depends on the markets! Ideally I'd be making full use of my divi allowance, making some if not all use of my gct allowance and a good chunk of the savings allowance. We shall see I gusss!

Nice to pay zero personal tax for the first time in 22 years! 

Stusumm64

Hiya.
I am in the exact same situation as KovaK, the original poster, I’m not working atm, not on benefits and am not receiving a pension.
My only income is from savings interest.
Could someone definitively put this to bed once and for all.
Will I or will I not have to pay tax in my situation if my savings interest falls (way) below the £12,570 “Personal Allowance”?
I spoke to a financial advisor yesterday and he said I definitely will NOT have to pay any tax, but then today spoke to a friends accountant and he said I would have to pay tax as the “Personal Allowance” is the threshold for people working before they start to pay income tax and it doesn’t apply to me in my situation, it only applies to people who are actually employed and are earning an income (wages).
KovaK is correct when she says the MSE article on tax free savings interest (Helen Saxon) is slightly ambiguous, as is the information on this subject on the HMRC GOV.UK website…
It doesn’t say anything DEFINITIVE about the situation that NovaK and myself are in…
If Helen Saxon could update her article on this issue, that would be great..
But anyway, please help if possible, as I’ve been trying to find out for 3 weeks and still not sure…
Thanks…

eskbanker

Stusumm64 said:

Hiya.
I am in the exact same situation as KovaK, the original poster, I’m not working atm, not on benefits and am not receiving a pension.
My only income is from savings interest.
Could someone definitively put this to bed once and for all.
Will I or will I not have to pay tax in my situation if my savings interest falls (way) below the £12,570 “Personal Allowance”?
I spoke to a financial advisor yesterday and he said I definitely will NOT have to pay any tax, but then today spoke to a friends accountant and he said I would have to pay tax as the “Personal Allowance” is the threshold for people working before they start to pay income tax and it doesn’t apply to me in my situation, it only applies to people who are actually employed and are earning an income (wages).
KovaK is correct when she says the MSE article on tax free savings interest (Helen Saxon) is slightly ambiguous, as is the information on this subject on the HMRC GOV.UK website…
It doesn’t say anything DEFINITIVE about the situation that NovaK and myself are in…
If Helen Saxon could update her article on this issue, that would be great..
But anyway, please help if possible, as I’ve been trying to find out for 3 weeks and still not sure…
Thanks…

As per the first reply on this thread in response to the same question, the correct answer is that given by your financial advisor, not your friend's accountant, i.e. no tax to pay if all your income is savings interest and it's below £18,570.

Dazed_and_C0nfused

but then today spoke to a friends accountant and he said I would have to pay tax as the “Personal Allowance” is the threshold for people working before they start to pay income tax and it doesn’t apply to me in my situation, it only applies to people who are actually employed and are earning an income (wages).

Oh dear 😳.

Assuming you are UK resident and actually entitled to a Personal Allowance then the answer is either £18,570 or £17,310 (if you have applied for Marriage Allowance).

Once you have used your Personal Allowance the next £6,000 of interest would be taxed at 0%.

Stusumm64

Hiya
Thanks for your replies..
Dazed_and_COnfused (and eskbanker,) I am a UK citizen and you say, am I “actually entitled to a personal allowance”..
Isn’t every UK citizen entitled to one?
Also, as you both said I will not pay tax on my savings interest, will HMRC write to me regardless?
Thanks.

Dazed_and_C0nfused

Stusumm64 said:

Hiya
Thanks for your replies..
Dazed_and_COnfused (and eskbanker,) I am a UK citizen and you say, am I “actually entitled to a personal allowance”..
Isn’t every UK citizen entitled to one?
Also, as you both said I will not pay tax on my savings interest, will HMRC write to me regardless?
Thanks.

If you are resident in the UK then yes you will automatically get the Personal Allowance.  It could be different if you are no longer UK resident.

If you don't have any PAYE income (employment or pension) and don't owe any tax them no I wouldn't expect HMRC to contact you.

I think they have enough to deal with from people who do owe tax without having to contact everyone who doesn't owe tax.

Albermarle

but then today spoke to a friends accountant and he said I would have to pay tax as the “Personal Allowance” is the threshold for people working before they start to pay income tax and it doesn’t apply to me in my situation, it only applies to people who are actually employed and are earning an income (wages).

Maybe you can forward this link to your friends accountant.

Tax-free savings: check if you're eligible - Money Saving Expert

harveydee

What if you are in the position of having zero earnings but lots of savings interest and some dividends ... but also some capital gains, say £10k worth after allowing for cgt allowance of £6k in current tax year. How does the capital gains affect, if at all, your c. £18k tax-free income? Thanks !

eskbanker

The rate at which you pay CGT depends on your taxable income (even that taxed at 0%) but it doesn't work the other way round, i.e. the amount of CGT doesn't affect your income taxation.