Tax on Savings - Low Pension Income.

xylophone

Have a look at this (a Gov.uk site)

https://www.gov.uk/apply-tax-free-interest-on-savings

Your allowances for earning interest before you have to pay tax on it include:

• your Personal Allowance
• starting rate for savings
• Personal Savings Allowance

You get these allowances each tax year. How much you get depends on your other income. The tax year runs from 6 April to 5 April the following year.

The Personal Allowance can be used against savings income and/or non- savings income.

The starting rate for savings can be used against savings income only.

The personal savings allowance can be used against savings income only.

Take Jane who earns £12,570 a year.    Her only other income arises from her savings and the non ISA portion of that interest amounts  to £4000 a year.

All  the non ISA  savings income  and the earnings are taxable income.

Her income is under  £50,270 and therefore  she is liable to basic rate tax.

However, against her liability for tax she can set her Personal Allowance ( which may be used against savings and non savings income).

Her PA uses all her non savings income. She pays no tax on it.

With regard to her non isa savings income, she uses £4000 of the starter rate for savings.

All this interest is tax free.

She is not eligible for the personal savings allowance because she has not received enough interest to be able to use it.

If the non isa savings income were £6000, it would be tax free because she would be able to use the full starter rate for savings and the Personal Savings Allowance.

If she has no earned income at all but does have non isa savings income of £18,750 then she will pay no tax because she can use

Personal Allowance

Starter Rate for Savings

Personal Savings Allowance.

eskbanker

Scot_39 said:

But even on your link it specifically says you have to be "a basic rate taxpayer" to benefit from PSA £1000.  Which is what HMRC site says and arguably is what moneyhelper table - perhaps interprets as after 12571 taxable earnings - to add the PSA £1000.

I can sort of understand the interpretation of the phrase 'basic rate taxpayer' to mean 'someone who is paying at least some tax at the basic rate', but my understanding remains that it's really used by HMRC only to differentiate from higher rate taxpayers rather than from non-taxpayers, so someone with no income at all would be defined as a basic rate taxpayer in the context of the personal savings allowance they'd have.

Scot_39

I used the feedback facility on moneyhelper to query it against MSE article - not sure it will work - as didn't ask for contact info etc - so maybe need to switch off some of my script blockers etc -  but thanks very much for all the help.

I thought I'd go for the dumbed down moneyhelper version - and it just didn't seem that logical.