Personal savings allce

Silverbird65

I think it's 1224.

Silverbird65

Sorry that's at the moment last yr when I told them about savings they reduced my code and I paid tax.

Dazed_and_C0nfused

Silverbird65 said:

I think it's 1224.

No tax would be deducted from that with tax code 122(L/M/N)

It means you tax code allowances are 1229

Silverbird65

Yes I think I get that but  last yes my savings income will they then take tax of my income from pensions as they don't seem to understand the starting rate when I speak to them

Dazed_and_C0nfused

Silverbird65 said:

Yes I think I get that but  last yes my savings income will they then take tax of my income from pensions as they don't seem to understand the starting rate when I speak to them

HMRC's systems definitely do account for the savings starter rate band.

Which tax year do you think you might be taxed incorrectly?

Have you ever actually paid tax when you shouldn't have because your tax code was too low?

msallen

This is a different situation, but may have a similar root cause...

I've been living off savings for the last couple of years before hitting 55 this year and starting drawdown of my pension a few months ago. I initially set my drawdown to £1000 per month with the intention of setting a more appropriate amount (in order to drawdown exactly 12570 pa for the first few years, having also taken a small tax free lump sum too).

When I got round to setting the drawdown amount exactly I noticed that my tax code was not 1257 but rather 1164. I rang HMRC to query this and was told that they had a known bug in the system such that if your "PAYE income" was less than £12570 (which mine looked to be on course to be after the first two months), then your estimated taxable interest was automatically deducted from 12570 to produce your new tax code without any consideration of either the £5k or £1 allowances. The person I spoke to was able to correct this whilst I was on the phone, and indeed notification of the amended code came through a week or so later.

Dazed_and_C0nfused

msallen said:

This is a different situation, but may have a similar root cause...

I've been living off savings for the last couple of years before hitting 55 this year and starting drawdown of my pension a few months ago. I initially set my drawdown to £1000 per month with the intention of setting a more appropriate amount (in order to drawdown exactly 12570 pa for the first few years, having also taken a small tax free lump sum too).

When I got round to setting the drawdown amount exactly I noticed that my tax code was not 1257 but rather 1164. I rang HMRC to query this and was told that they had a known bug in the system such that if your "PAYE income" was less than £12570 (which mine looked to be on course to be after the first two months), then your estimated taxable interest was automatically deducted from 12570 to produce your new tax code without any consideration of either the £5k or £1 allowances. The person I spoke to was able to correct this whilst I was on the phone, and indeed notification of the amended code came through a week or so later.

That isn't a bug that is how tax codes are intended to work.

You can only use the savings starter rate band and savings nil rate band once you have used all your Personal Allowance.

As, at the point your tax code was calculated, HMRC expected you to have unused Personal Allowances then some of the interest used these.

Which left tax code allowances equal to the amount of expected pension income.

Had you changed your expected pension income to say £12,570 then there would be no spare Personal Allowance and no tax code deduction (unless the interest was greater than £6,000).

Hopefully the HMRC adviser hasn't caused too much damage to your tax records by whatever they've done to manipulate things 🙈

Silverbird65

Ok in my case how is your tax code calculated if you have income of 10500 plus savings 3000. Thanks

xylophone

This as explained by somebody who has had experience of the problem.

She has a state pension (£8337 pa and very modest occupational pension (£2736 pa)  which together total less than her PA.

Her only other taxable income is from savings interest.

This is what HMRC do.

Personal Allowance       £12570

Less State Pension        £8337

Less untaxed interest   £2015

Total Tax free amount   £2218

Your total tax free amount is used as follows

Anyco Pension Fund      £2218 of this pension is tax free

Tax Code   221L

As can be seen from the above this person should not have been paying any tax on her small occupational pension but did!

Cue long conversation with HMRC rep who did not appear to understand the savings income rules but could only parrot "this is how we do it"!

The pensioner in question also pointed out that the amount of savings interest was also inaccurate - it turned out that figures from previous years and old closed accounts were being used!

She gave the figure for the interest received in the tax year ending 5/4/22 which was well under £1000 and the HMRC rep agreed to use this which brought the total tax free amount to a sum higher than her modest pension. A new tax code was issued to the pension provider.

The tax deducted was refunded through the pension provider and she now receives her pension without tax deducted which is correct.

But if "this is how we (HMRC) do it", she can look forward to more frustrating conversations in the future.

Silverbird65

I agree if your savings interest  plus income take you over 12570 you get taxed even though you a starter rate. So every tax yr you then have to get a calculation and a tax refund. Nuts!