Personal Savings Allowance (PSA) Confusion 2 December 2022 at 11:08AM in Savings & investments 2 replies 203 views

wisdenfan

Hi All,

Hoping to tap into the collective expertise of the MSE community regarding a confusion that I have with Personal Savings Allowance (PSA). I'm a high rate tax payer, hence I have a PSA of 500£ per tax year. I'm writing down couple of real life scenarios here, to explain my confusion on how the PSA works out for a given tax year:

Scenario 1: I opened a 1 year fixed rate savings account in November 2021 (deposited 1000£ at 2.4%). It meant that I was going to receive 24£ in interest when the fixed rate finishes in November 2022. As per my understanding, that 24£ in interested would have counted towards my 500£ PSA for tax year 2022-23. But then in October 2022 (a month before it was due to mature), my bank offered me a deal to reinvest my money (including the interest accrued upto that point) early with a better rate of 4%. My accrued interest up to that point was 22£, so I ended up reinvesting a total of 1022£ for 1 more year at 4%. My question is, the 22£ in interest that I ended up reinvesting (without taking it out of my account), will that be counted towards my 500£ PSA for tax year 2022-23?

Scenario 2: I have opened another 1 year fixed rate savings account in May 2022 (deposited 1000£ at 3%), which will mature in May 2023. For this account, I receive a monthly interest of 2.50£ which gets deposited into the fixed rate account (I have no access to this, I will only get access to the interest at the end of the fixed term). I'm assuming that all the monthly interest accrued during the tax year 2022-23 (between May 2022 and April 2023) will not count towards the PSA for tax year 2022-23, instead, the total interest of 30£ will just count towards the PSA for tax year 2023-24 (as it is maturing in May 2023)?

Any advice on this will be highly appreciated.

Dazed_and_C0nfused

Scenario 1).  To be able to reinvest (save) £1,022 the bank must have paid you £22 so you will have £22 of taxable interest 

Scenario 2).  If the interest is being credited to your account each month I suspect the bank will report it to HMRC when the 2022:23 tax year ends so it would be taxed for that year.

PSA isn't really an "allowance", it's a 0% tax rate and the income will be taxed, even if just at 0%.

As taxable income it forms part of your adjusted net income so as a higher rate payer you also need to consider the (possible) impact on HICBC and tapered Personal Allowance.

wmb194

wisdenfan said:

Hi All,

Hoping to tap into the collective expertise of the MSE community regarding a confusion that I have with Personal Savings Allowance (PSA). I'm a high rate tax payer, hence I have a PSA of 500£ per tax year. I'm writing down couple of real life scenarios here, to explain my confusion on how the PSA works out for a given tax year:

Scenario 1: I opened a 1 year fixed rate savings account in November 2021 (deposited 1000£ at 2.4%). It meant that I was going to receive 24£ in interest when the fixed rate finishes in November 2022. As per my understanding, that 24£ in interested would have counted towards my 500£ PSA for tax year 2022-23. But then in October 2022 (a month before it was due to mature), my bank offered me a deal to reinvest my money (including the interest accrued upto that point) early with a better rate of 4%. My accrued interest up to that point was 22£, so I ended up reinvesting a total of 1022£ for 1 more year at 4%. My question is, the 22£ in interest that I ended up reinvesting (without taking it out of my account), will that be counted towards my 500£ PSA for tax year 2022-23?

Scenario 2: I have opened another 1 year fixed rate savings account in May 2022 (deposited 1000£ at 3%), which will mature in May 2023. For this account, I receive a monthly interest of 2.50£ which gets deposited into the fixed rate account (I have no access to this, I will only get access to the interest at the end of the fixed term). I'm assuming that all the monthly interest accrued during the tax year 2022-23 (between May 2022 and April 2023) will not count towards the PSA for tax year 2022-23, instead, the total interest of 30£ will just count towards the PSA for tax year 2023-24 (as it is maturing in May 2023)?

Any advice on this will be highly appreciated.

In scenario 2 did you have the option to have the interest paid away to an external account when you opened it? If so, the relevant £2.50 monthly interest will be attributed to the 2022/23 tax year. If this option wasn't available then in the tax year it matures.

 Btw, in English the pound sign comes before the number.