Savings interest being taxed

eskbanker

It does certainly seem illogical to present tax codes in this way, as discussed in numerous previous threads, in which some will say it's a bug in HMRC's systems and others will portray it as a feature!

However, seemingly inaccurate tax codes shouldn't affect how much tax is ultimately paid, but in certain circumstances (such as increasing a taxable income stream) it can result in too much tax initially being collected.  The fact remains though that if your wife has earnings (such as pension payments) of less than £12,570 and total taxable income (including savings) of less than £18,570, she won't be liable for any income tax....

The fundamental point is that tax codes don't change allowances as such - they're just a relatively blunt instrument used to manage PAYE deductions, but they don't affect taxation of non-PAYE income such as savings interest.

Argonauts

So we can take extra cash then claim back next tax year 
again we have to chase our rightful cash as tax man takes it and you must claim back 

eskbanker

Argonauts said:

So we can take extra cash then claim back next tax year 
again we have to chase our rightful cash as tax man takes it and you must claim back 

This is becoming a bit circular - if the pension income assumptions made by HMRC are no longer accurate then inform them of this:

eskbanker said:

Argonauts said:

So if we take £8000 out of sipp with a 600T code will £2000 be over tax code and get taxed 

If that's what you want to do then it can be reclaimed retrospectively if it results in extra tax or it should be possible to get the code adjusted proactively in advance, if the overall position for the tax year is explained clearly to HMRC.

Dazed_and_C0nfused

Argonauts said:

So we can take extra cash then claim back next tax year 
again we have to chase our rightful cash as tax man takes it and you must claim back 

You don't need to claim anything back.

Tax codes are only as good as the latest information HMRC and they aren't mindreaders so wouldn't know if the pension income was to change from £6k to £8k.

But if you know this then you can update the estimated pension income via the Personal Tax Account and if that means there are no spare Personal Allowances (or a reduced amount) available to be used by the interest then a new tax code will be issued to reflect this, for example the 600T could could become 800T.

Argonauts

Told them we could go to 8000 from sipp
told tax code will stay 600T so be over that pensions tax free limit 


the interest of £2155 is the use it’s not as if the wife had gone over the £18570 limit by £2155


12570 personal allowance 
5000 starter for savings
1000 psa
18570

Anything under this amount is tax free is that correct 
so wife could have £10000 in pension payments and £8000 banks savings interest and not pay tax 

Dazed_and_C0nfused

Argonauts said:

Told them we could go to 8000 from sipp
told tax code will stay 600T so be over that pensions tax free limit 


the interest of £2155 is the use it’s not as if the wife had gone over the £18570 limit by £2155


12570 personal allowance 
5000 starter for savings
1000 psa
18570

Anything under this amount is tax free is that correct 
so wife could have £10000 in pension payments and £8000 banks savings interest and not pay tax 

Assuming total taxable non savings non dividend income such as the pensions is £12,570 or less then interest between £12,570 and £18570 would be taxed at 0%.

Dazed_and_C0nfused

Argonauts said:

Told them we could go to 8000 from sipp
told tax code will stay 600T so be over that pensions tax free limit 


the interest of £2155 is the use it’s not as if the wife had gone over the £18570 limit by £2155

Either you've missed out some key info or you've been poorly informed by HMRC.

This is from your original post,

wife has two tax codes 441L on work pension she gets £4300 a year
sipp code 600T she’s taking out £5500
grand total £9800 nowhere near £12570
why has she not got a total of 12570 for her codes 
she has interest of £2155 reducing her code why is this on there

In that situation if her (taxable) SIPP income increases to £8,000 then her tax codes would be,

SIPP code 800T
Work pension code 430L

The 430L would be made up as follows,

Personal Allowance £12,570
Less

Allowances given to SIPP pension £8,000
Allowances used by interest £270

12,570 - 8,000 - 270 = 4300

Tax code allowances 4300 = tax code 430L

Nothing changes regarding the interest, it's just that there are fewer spare allowances to be used by it.

Argonauts

We did get codes adding up to 12570 in early January 
but somebody changed them back to 10415 in total
441L. 600T and added the £2155 again ?

why I don’t know 

Dazed_and_C0nfused

Argonauts said:

We did get codes adding up to 12570 in early January 
but somebody changed them back to 10415 in total
441L. 600T and added the £2155 again ?

why I don’t know 

Have you checked her PTA to see what the estimate is that HMRC are using for both the SIPP and work pension?

I suspect that they aren't actually in line with what you have posted.

Argonauts

Estimates are 4300 for works pension
5600 for sipp
so 441 @ 600 are enough 


but we would like 800T on Sipp but not enough left say HMRC

she only has 10415 to use how she wants on both pensions