Tax Free Interest Allowance on Savings

Harryo

Time and time again, even within articles on the ML website, authoritative money papers and web articles, etc I see what I consider to be very misleading or incomplete advice such as the following, taken from this week's ML Article ""Martin's Five Minute Wallet Workout"":

"""So for a long, say, three-year fix, you can be taxed as if you earned a lot of interest all at once. Under the personal savings allowance (PSA), basic (20%) taxpayers can earn £1,000 A YEAR of interest tax-free, while higher (40%) taxpayers can earn £500/yr (top 45% taxpayers don't get a PSA)."""

To me, this kind of wording indicates that the maximum interest a 20% tax payer can earn tax free is £1000. Yes this is the Personal Savings Allowance BUT there is the Starting Rate for Savings which allows up to an additional £5000 tax free allowance (and of course for those not actually paying tax there is the personal allowance as well).

So in total a 20% tax payer earning just on the border of the personal allowance (single person at £12570) can earn up to £6000 in interest tax free and not just £1000. A non tax payer can earn up to £18570 interest tax free. The £6000 reduces the greater the amount the tax payer earns on a sliding scale down to £1000 (when the tax payer earns £17570).

I just feel this should be spelt out fully and correctly.

What do others think?? 

eskbanker

Harryo said:

Time and time again, even within articles on the ML website, authoritative money papers and web articles, etc I see what I consider to be very misleading or incomplete advice such as the following, taken from this week's ML Article ""Martin's Five Minute Wallet Workout"":

"""So for a long, say, three-year fix, you can be taxed as if you earned a lot of interest all at once. Under the personal savings allowance (PSA), basic (20%) taxpayers can earn £1,000 A YEAR of interest tax-free, while higher (40%) taxpayers can earn £500/yr (top 45% taxpayers don't get a PSA)."""

To me, this kind of wording indicates that the maximum interest a 20% tax payer can earn tax free is £1000. Yes this is the Personal Savings Allowance BUT there is the Starting Rate for Savings which allows up to an additional £5000 tax free allowance (and of course for those not actually paying tax there is the personal allowance as well).

[...]

I just feel this should be spelt out fully and correctly.

What do others think?? 

The starting savings rate is spelt out fully and correctly in articles such as https://www.moneysavingexpert.com/savings/tax-free-savings/ but it's not a subject that lends itself to full explanation in every single place that the PSA is referred to, and the population who can use it is significantly smaller than those who can benefit from the PSA, so it's not surprising that it isn't trumpeted so prominently.  Anyone reading a 'five minute' article that heavily simplifies everything it refers to really needs to understand that they need to research much more fully elsewhere....

dunstonh

Time and time again, even within articles on the ML website, authoritative money papers and web articles, etc I see what I consider to be very misleading or incomplete advice such as the following, taken from this week's ML Article ""Martin's Five Minute Wallet Workout"":

Martin doesn't give advice.       And you need to look at the source of material in context.    In some articles, he will be limited to a certain number of words and is briefed to keep it snappy.   So, things will get cut out to cater for the majority.    In the more detailed sections, there will be more scenarios covered (as mentioned above)

I just feel this should be spelt out fully and correctly.Ok.  You are now working at ITV and you tell Martin that he has 30 seconds on each subject but he has to cover every potential scenario.  How would you do it?

Albermarle

The starting savings rate is spelt out fully and correctly in articles such as https://www.moneysavingexpert.com/savings/tax-free-savings/

Also spelt out fully on this forum when answering questions from posters about it ( on a pretty much daily basis )

Dazed_and_C0nfused

Albermarle said:

The starting savings rate is spelt out fully and correctly in articles such as https://www.moneysavingexpert.com/savings/tax-free-savings/

Also spelt out fully on this forum when answering questions from posters about it ( on a pretty much daily basis )

What would win the race to most asked question?

How does tax work with interest?

Does my State Pension get reduced by my COPE amount?
Why haven't I got £185.15/week State Pension despite having 35 years NI?

Guess it makes a change from why does it cost so much to transfer my gold plated pension 😄

eskbanker

Dazed_and_C0nfused said:

Albermarle said:

The starting savings rate is spelt out fully and correctly in articles such as https://www.moneysavingexpert.com/savings/tax-free-savings/

Also spelt out fully on this forum when answering questions from posters about it ( on a pretty much daily basis )

What would win the race to most asked question?

How does tax work with interest?

Does my State Pension get reduced by my COPE amount?
Why haven't I got £185.15/week State Pension despite having 35 years NI?

Guess it makes a change from why does it cost so much to transfer my gold plated pension 😄

And let's not forget the perennial but baffling seasonal favourite from this time of year: if I pay into my cash ISA just before the end of the tax year, will I get the full annual interest rate?

https://forums.moneysavingexpert.com/discussion/6436467/can-i-top-up-my-isa-now-before-end-of-tax-year-to-gain-intrest
https://forums.moneysavingexpert.com/discussion/6434873/how-is-the-isa-interest-calculated

Ceejay3000

Harryo said:

Time and time again, even within articles on the ML website, authoritative money papers and web articles, etc I see what I consider to be very misleading or incomplete advice such as the following, taken from this week's ML Article ""Martin's Five Minute Wallet Workout"":

"""So for a long, say, three-year fix, you can be taxed as if you earned a lot of interest all at once. Under the personal savings allowance (PSA), basic (20%) taxpayers can earn £1,000 A YEAR of interest tax-free, while higher (40%) taxpayers can earn £500/yr (top 45% taxpayers don't get a PSA)."""

To me, this kind of wording indicates that the maximum interest a 20% tax payer can earn tax free is £1000. Yes this is the Personal Savings Allowance BUT there is the Starting Rate for Savings which allows up to an additional £5000 tax free allowance (and of course for those not actually paying tax there is the personal allowance as well).

So in total a 20% tax payer earning just on the border of the personal allowance (single person at £12570) can earn up to £6000 in interest tax free and not just £1000. A non tax payer can earn up to £18570 interest tax free. The £6000 reduces the greater the amount the tax payer earns on a sliding scale down to £1000 (when the tax payer earns £17570).

I just feel this should be spelt out fully and correctly.

What do others think?? 

What do others think?

I think you haven't remembered that you have to earn less than £17,570 a year and have a standard tax code to benefit from the starting rate.

For the majority of people, even those on very low salaries, the PSA and ISA allowances are the only savings tax allowances they qualify for.

How many people earning less than £17,570 a year (I assume that includes income from pensions) can actually save anything to make use of their starting allowance anyway?

xylophone

A couple with one high earner and one low/no earner can benefit from all non isa savings being diverted from one to the other.

Albermarle

How many people earning less than £17,570 a year (I assume that includes income from pensions) can actually save anything to make use of their starting allowance anyway?

You do not have to actually save anything now, it could be from the past.

For example, you might be a pensioner, with low income now, but higher income in the past, from which substantial savings had been built up.