Starter Savings Rate for my wife

Starship9

My wifes taxable income is an occupational pension of just over £7K per annum (gross) plus her interest from investments (around £1.7k in the past 12 months). She has transferred £1260 of her personal allowance to me to reduce my tax a little. Looking at her tax coding for this current year, she does not seem to be getting the Starter Savings Rate for investment interest which I believe is up to £5K per annum on top of the £1K that all basic rate tax payers get, and she has a deduction of nearly £800 to the annual allowance for income from investments. We spoke to our local Tax Office advisor who seemed not to know about the Starter Savings Rate despite our reading the Governments own webpage on the topic out to him !

Are there known issues with the application of the Starter Savings Rate to applicable peoples tax codes or are we overlooking something ?

It does not seem to me, from reading the guidance available, that my wife, with such a low taxable income, should be paying tax on investments until they reach much, much higher levels ???

Thanks in advance for any help and apologies if this is already covered by a thread elsewhere that I have overlooked.

Albermarle

There was a previous thread about a bug in HMRC system, regarding savings interest for people earning less than the personal allowance. 
Read through this, the main relevant detail is on the second page.
Personal savings allce — MoneySavingExpert Forum

Dazed_and_C0nfused

Your wife cannot use the savings starter rate or savings nil rate of tax as they only apply when the Personal Allowance has been used.

And it is in a specific order, Personal Allowance must be used first.  Then the savings starter rate can be used (if available).  And once that has been used the savings nil rate can be used.

There is no bug in the tax code system.  It doesn't work how people might like it to but it correctly factors in that your wife has unused Personal Allowance.

The only time this would cause an issue is if her pension income was greater than HMRC had estimated and this caused her to pay tax unnecessarily.  Which it wouldn't alway do but isn't impossible if the pension income increases from HMRCs estimate.

If she has a tax code of 700N or higher then she won't be paying tax so no problem exists.

Or are you suggesting she is paying tax unnecessarily 🤔

It does not seem to me, from reading the guidance available, that my wife, with such a low taxable income, should be paying tax on investments until they reach much, much higher levels ???

Starship9

Dazed_and_C0nfused said:

......Or are you suggesting she is paying tax unnecessarily 🤔

It does not seem to me, from reading the guidance available, that my wife, with such a low taxable income, should be paying tax on investments until they reach much, much higher levels ???

Thank you for the advice / explanation. Currently I do not think that my wife is paying tax unnecessarily but with rising interest rates and indexed linked pension rises in the pipeline, I am concerned that this might be the case in due course. We have no issues whatsoever with paying appropriate income tax of course but if allowances are available and applicable then, naturally, we would like them to be applied.

Thanks again.

Dazed_and_C0nfused

Starship9 said:

Dazed_and_C0nfused said:

......Or are you suggesting she is paying tax unnecessarily 🤔

It does not seem to me, from reading the guidance available, that my wife, with such a low taxable income, should be paying tax on investments until they reach much, much higher levels ???

Thank you for the advice / explanation. Currently I do not think that my wife is paying tax unnecessarily but with rising interest rates and indexed linked pension rises in the pipeline, I am concerned that this might be the case in due course. We have no issues whatsoever with paying appropriate income tax of course but if allowances are available and applicable then, naturally, we would like them to be applied.

Thanks again.

There are no allowances for interest.

There is the Personal Allowance and two 0% tax rates.

And your wife is unable to benefit from those 0% tax rates until her taxable income increases significantly.

Let's say her pension remains £7,700 and she receives £5,250 in interest so a total taxable income of £12,950, slightly above her Personal Allowance.

She could then make use of the savings starter rate band.  But she would not benefit from the savings nil rate band (aka Personal Savings Allowance).

Her tax code would be

Personal Allowance £11,310
Less interest £3,610
Tax code allowance £7,700
Tax code 770N

Still no tax to pay.

Starship9

OK, I think I'm getting it now 

Thanks for the further advice. 

I'll listen to the 17th November Autumn Statement with great interest to see what changes that ushers in !

I guess some of this stuff might not be headline news so reading the detailed statement will be required.

Dazed_and_C0nfused

The only thing you need to do is make sure the estimate HMRC use for her pension is accurate.

It will be accurate in the sense it reflects what the pension company report under their Real Time Information reports but you might know it is being increased by say 10%.

And obviously HMRC won't know that for each individual pension scheme as they use data already reported, not hypothetical data not yet reported!