Tax on Savings Interest

chaps232

Wondering if someone might be able to clarify something for me...

I understand that the standard personal savings allowance for most people is £1000 of interest tax-free. My situation is a bit different and I'm not sure if I'm being a stupid with my understanding of the rules.

I'm currently completing a PhD, for which I receive a tax-free stipend of ~£17k.

As this is tax-free, I technically don't have any taxable income. Would that mean that the amount I can earn in tax-free interest would jump to £17,570? (i.e. the personal income tax allowance of £12,570 plus the £5,000 starting rate for savings)

AmityNeon

£18,570 in interest before you have to start paying tax:

• £12,570 Personal Allowance
• £5,000 starting rate for savings (0%)
• £1,000 Personal Savings Allowance (0%)

eskbanker

There is a difference between genuinely 'tax-free' income (such as your stipend) and taxable income from savings, even if this is taxed at 0% by virtue of being within the nil rate bands or the personal tax allowance, but the bottom line is that if your stipend income is entirely outside the income tax regime then you can earn up to £18,570 from savings interest without paying tax on it, i.e. £12,570 personal allowance plus £5,000 starting rate plus £1,000 personal savings allowance:

https://www.moneysavingexpert.com/savings/tax-free-savings/

If you have enough savings to earn significant interest in five figures then it would make sense to ensure that you make the most use of tax wrappers such as ISAs or maybe even pensions, depending on when you're likely to need access.