New tax code - Interest on savings?

Sunshine_and_Roses

I previously gave my Married Tax Allowance to my husband, but recently cancelled this so I can take advantage of the Starter Rate.  I have just checked my tax code and it is showing as 1221L

How your tax-free amount is calculated

Personal Allowance

The amount is£12,570

Additions

Flat rate job expenses

£80

Update or removeUpdate or remove Flat rate job expenses

Total additions

£80

Deductions

Untaxed interest on savings and investments

£435

Total deductions

£435

Your total tax-free amount

The amount is£12,215

I think the flat rate job expenses is from a previous job where I had uniform, if so I will remove this.  I do not understand the untaxed interest on savings and investments.  I thought I had £1000 personal allowance and then £5000 starter rate.  Should I question this as I thought my tax code should be 1257L?

penners324

What Starter Rate?

Sunshine_and_Roses

penners324 said:

What Starter Rate?

I believe you can earn up to £5000 on savings interest on top of your £1000 personal allowance if you are a non tax payer.

penners324

I don't think there is anything called a Starter Rate

Sunshine_and_Roses

Can you advise what the £435 interest would be for then?  As I am a low earner I did not think that interest on my savings would be counted?  Thanks.

Dazed_and_C0nfused

If you are a low earner then the interest uses some of your spare Personal Allowance.

Only once that has been used can you use the savings starter rate band (which does exist 😃).

And only once that has been used (if available) can you use the savings nil rate band (aka Personal Savings Allowance).

Do you currently earn less £12,215 from the job/pension that the tax code is applicable to?

Also, applying for Marriage Allowance doesn't prevent you from using the savings starter rate band.  If you have sufficient income to need to of course.

Sunshine_and_Roses

Dazed_and_C0nfused said:

If you are a low earner then the interest uses some of your spare Personal Allowance.

Only once that has been used can you use the savings starter rate band (which does exist 😃).

And only once that has been used (if available) can you use the savings nil rate band (aka Personal Savings Allowance).

Do you currently earn less £12,215 from the job/pension that the tax code is applicable to?

Also, applying for Marriage Allowance doesn't prevent you from using the savings starter rate band.  If you have sufficient income to need to of course.

I earn just under £12,000, so the £435 would make sense as it is less than the difference between £12570 and £12000 to be used first for interest on savings.  

Thanks for your reply, and for clarifying about the savings starter rate.

zagfles

The HMRC PAYE system hasn't been properly updated to cope with the PSA, even though we've had it about 6 years. If it expects you not to use up your personal allowance it deducts interest it expects you to earn from your tax code even though this is totally pointless.

If you don't use up your personal allowance it'll make no difference, but if you do, you'll be overtaxed. How much do you expect to earn?

zagfles

clareski said:

Dazed_and_C0nfused said:

If you are a low earner then the interest uses some of your spare Personal Allowance.

Only once that has been used can you use the savings starter rate band (which does exist 😃).

And only once that has been used (if available) can you use the savings nil rate band (aka Personal Savings Allowance).

Do you currently earn less £12,215 from the job/pension that the tax code is applicable to?

Also, applying for Marriage Allowance doesn't prevent you from using the savings starter rate band.  If you have sufficient income to need to of course.

I earn just under £12,000, so the £435 would make sense as it is less than the difference between £12570 and £12000 to be used first for interest on savings.  

Thanks for your reply, and for clarifying about the savings starter rate.

You're wasting some personal allowance, so sounds like you'd be better off transferring it, you'd pay some tax but your husband would save more. Assuming he earns around £14k-50k ie enough to take advantage of the transfer and not a higher rate taxpayer. You could still earn a bit over £5k interest and not pay any tax on it. 

Sunshine_and_Roses

zagfles said:

clareski said:

Dazed_and_C0nfused said:

If you are a low earner then the interest uses some of your spare Personal Allowance.

Only once that has been used can you use the savings starter rate band (which does exist 😃).

And only once that has been used (if available) can you use the savings nil rate band (aka Personal Savings Allowance).

Do you currently earn less £12,215 from the job/pension that the tax code is applicable to?

Also, applying for Marriage Allowance doesn't prevent you from using the savings starter rate band.  If you have sufficient income to need to of course.

I earn just under £12,000, so the £435 would make sense as it is less than the difference between £12570 and £12000 to be used first for interest on savings.  

Thanks for your reply, and for clarifying about the savings starter rate.

You're wasting some personal allowance, so sounds like you'd be better off transferring it, you'd pay some tax but your husband would save more. Assuming he earns around £14k-50k ie enough to take advantage of the transfer and not a higher rate taxpayer. You could still earn a bit over £5k interest and not pay any tax on it. 

Husband has recently retired, has a small company pension at the moment then will get state pension later in the year.  My wages may increase this year with overtime.  I think that will balance out for this year, though it may change in the future if I take early retirement.

Sunshine_and_Roses

zagfles said:

The HMRC PAYE system hasn't been properly updated to cope with the PSA, even though we've had it about 6 years. If it expects you not to use up your personal allowance it deducts interest it expects you to earn from your tax code even though this is totally pointless.

If you don't use up your personal allowance it'll make no difference, but if you do, you'll be overtaxed. How much do you expect to earn?

My wages this year will be between £12,000 and £13,000.  I have some money in fixed term savings for 1, 2 and 3 years.  Does the interest on the 3 years count per annum or for the whole amount in year three at term for interest purposes?