Tax on savings interest

Tassie_Devil

I'm a bit confused about how the personal savings allowance and starting rate for savings work together.

Assume I'm retired and a basic rate tax payer, tax code 1257L and my only sources of income are SP and savings interest.

Let's say my state pension is £9570 pa, and I receive £9000 pa in savings interest, total £18570.

Is that all untaxed as it is covered by my personal allowance + personal savings allowance + starting rate for savings?

MikeJXE

It took me a while to to get my head round it and I'm no expert but yes thats my calculation too. Plus I might be wrong but I believe you can still have another £1000 personal anllowance interest tax free also.

Dazed_and_C0nfused

Let's say my state pension is £9570 pa, and I receive £9000 pa in savings interest, total £18570.

Is that all untaxed as it is covered by my personal allowance + personal savings allowance + starting rate for savings?

You are very nearly correct.

In the situation you have described the first £3,000 of your interest is covered by the spare Personal Allowance.

The next £5,000 is taxed under the savings starter rate (0%).

And the final £1,000 is taxed under the savings nil rate* (also 0%).  

*aka Personal Savings Allowance

Any unused Personal Allowances must be used first.  Then any available savings starter rate and only once that has been used can the savings nil rate be used.

If your pension income was say £13,000 then you would pay tax on £430 of the pension income and only have £4,570 savings starter rate band to use (£5,000 less £430).

All of the above assumes you haven't applied for Marriage Allowance.

Dazed_and_C0nfused

MikeJXE said:

It took me a while to to get my head round it and I'm no expert but yes thats my calculation too. Plus I might be wrong but I believe you can still have another £1000 personal anllowance interest tax free also.

No, there aren't any extra allowances for interest.

For anyone with adjusted net income of less than £100,002 you have the following which can apply to interest,

Personal Allowance (£11,310 or £12,570)
Savings starter rate (up to £5,000 taxed at 0%)
Savings nil rate (up to £1,000 taxed at 0%)
Savings basic rate (20%)
Savings higher rate (40%)

Tassie_Devil

Thanks all.