Tax on savings

Hello everyone and sorry if this has been covered before.I’m retired and pay tax on one of my pensions.I may have exceeded the £1000 tax free interest on savings,so will probably move some savings to an ISA.My question is ,and the bit I don’t understand is do the institutions I save with automatically report the interest to HRMC who then tax me so that I don’t take any action ?
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  • Dazed_and_C0nfusedDazed_and_C0nfused Forumite
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    What about the savings starter rate?

    How much of your pension income is a fully taxed (above the Personal Allowance)?
  • kingsshillingkingsshilling Forumite
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     Can you explain what the savings starter rate is .? 
  • kingsshillingkingsshilling Forumite
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    My combined pensions exceed £17570
  • edited 2 November 2022 at 11:08AM
    Dazed_and_C0nfusedDazed_and_C0nfused Forumite
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    edited 2 November 2022 at 11:08AM
    You have a £5,000 rate band where interest is taxed at 0%.

    This gets reduced pound for pound by any non savings non dividend income above your Personal Allowance.  So if your pension income is say £20,000 you don't get any savings starter rate band.

    But if it's £15,000 then you are only paying tax on £2,430 of the pension income and have £2,570 savings starter rate band (0%) to use before the savings nil rate band (aka Personal Savings Allowance) comes into play.

    But to answer your original question unless your interest exceeds £10,000 it's all dealt with automatically by HMRC.  The savings institutions report the interest after the end of each tax year and then HMRC send tax calculations and updated tax codes as necessary.
  • kingsshillingkingsshilling Forumite
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    Thanks for that ,so I really need to work out my individual savings starter band
  • refluxerrefluxer Forumite
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    If your combined pensions are more than £17,570, then the £5000 starter savings rate does not apply to you but you do get the Personal Savings Allowance of £1000 if you're a basic rate tax payer or £500 if you're a higher rate tax payer.

    There's more info here https://www.moneysavingexpert.com/savings/tax-free-savings/
  • QyburnQyburn Forumite
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    ...My question is ,and the bit I don’t understand is do the institutions I save with automatically report the interest to HRMC who then tax me so that I don’t take any action ?
    From my experience (well the missus actually) what HMRC did was reduce tax code for the next year in the expectation of taxable interest continuing. They didn't chase her for underpaid tax, and the tax code correction could be challenged, or all sorted out by doing a tax return.

  • poppystarpoppystar Forumite
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    Qyburn said:
    ...My question is ,and the bit I don’t understand is do the institutions I save with automatically report the interest to HRMC who then tax me so that I don’t take any action ?
    From my experience (well the missus actually) what HMRC did was reduce tax code for the next year in the expectation of taxable interest continuing. They didn't chase her for underpaid tax, and the tax code correction could be challenged, or all sorted out by doing a tax return.

    So does that mean the tax code is set for what they expect in the coming year and not on that plus what wasn’t paid the previous year? I must admit to getting a bit worried that in the first year they adjust the tax code it might be double what a single years would be to recoup the tax not paid in the previous year.

    Also did they send a notification detailing how the tax code had been calculated?

    As someone who has never filled on a tax return and has only ever got the standard allowance and tax code and so has never had a communication from HMRC it’s all rather an unknown thing in terms of how it works. I found the gov.uk site clear on the detail of what tax should be due but not on the mechanism. 
  • diystarter7diystarter7 Forumite
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    Dear OP, ring the tax office and they often answer the phone quickly atm. The online self-assessment line just say you are completing that and want clarity on your situation and take their name and area they operate from or reference number if that is possible.
     ..

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  • Dazed_and_C0nfusedDazed_and_C0nfused Forumite
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    poppystar said:
    Qyburn said:
    ...My question is ,and the bit I don’t understand is do the institutions I save with automatically report the interest to HRMC who then tax me so that I don’t take any action ?
    From my experience (well the missus actually) what HMRC did was reduce tax code for the next year in the expectation of taxable interest continuing. They didn't chase her for underpaid tax, and the tax code correction could be challenged, or all sorted out by doing a tax return.

    So does that mean the tax code is set for what they expect in the coming year and not on that plus what wasn’t paid the previous year? I must admit to getting a bit worried that in the first year they adjust the tax code it might be double what a single years would be to recoup the tax not paid in the previous year.

    Also did they send a notification detailing how the tax code had been calculated?

    As someone who has never filled on a tax return and has only ever got the standard allowance and tax code and so has never had a communication from HMRC it’s all rather an unknown thing in terms of how it works. I found the gov.uk site clear on the detail of what tax should be due but not on the mechanism. 
    The basic process is this,

    Year 1 - interest earned

    Year 2 - the bank reports the interest to HMRC.

    Year 2 - HMRC calculate any tax due  for year 1 and issues a calculation detailing any tax owed (ignoring tiny amounts).  The tax owed for year 1 either has to be paid by 31 January during year 2 or will be collected via a reduced tax code for year 3.

    Year 2 - the year 2 tax code is reviewed using the year 1 interest amount as the estimate for year 2

    Year 3 - tax code issued to include any tax owed from year 1 and uses the year 1 interest as the estimate for year 3

    Year 3 - the bank reports the interest received in year 2 and so on.....


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