Tax-free savings & the starting savings rate

Lawrence631

Hi,

My only source of income is interest on my savings. My current tax free allowance = £18570 (personal allowance £12570 + personal saving allowance £1000 + starting savings rate £5000). 

Does my starter savings rate of £5000 reduce by £1 for every £1 my annual interest exceeds £18570, or do I only pay tax on interest in excess of £18570.

ColdIron

The latter

You may be thinking of this

• If your other income is less than £17,570

• Your starting rate for savings is a maximum of £5,000. Every £1 of other income above your Personal Allowance reduces your starting rate for savings by £1.

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

Dazed_and_C0nfused

It's just non savings and non dividend income which can reduce the savings starter rate.

Things like employment, pension, rental income or self employment profits.

Savings interest doesn't reduce it.

TorkseyFern

Hi, this is the exact question I have been looking to the answer too. Basically no income and only receiving interest on savings. So the question is how much interest can you earn a year before you pay any tax? If the answer given by ColdIron is the latter then that means I could earn £18,750 before the tax man gets anything. Is that correct? If so then I assume that if I was lucky enough to earn £18k a year in interest then the tax man gets nothing? Any clarification of this would help as to be honest the .GOV seems a little vague, or maybe I am over thinking this too much.

Dazed_and_C0nfused

TorkseyFern said:

Hi, this is the exact question I have been looking to the answer too. Basically no income and only receiving interest on savings. So the question is how much interest can you earn a year before you pay any tax? If the answer given by ColdIron is the latter then that means I could earn £18,750 before the tax man gets anything. Is that correct? If so then I assume that if I was lucky enough to earn £18k a year in interest then the tax man gets nothing? Any clarification of this would help as to be honest the .GOV seems a little vague, or maybe I am over thinking this too much.

You're overthinking it 😄.

It's either £17,310 or £18,570, the lower figure applies if you've applied for Marriage Allowance.

Gov.uk is about right although after the Personal Allowance there are actually two 0% tax bands, not more "allowances".

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

And they are used in the specific order outlined on gov.uk i.e. the savings nil rate band (aka PSA) is of no benefit to lots of people, simply because they have too low an income to use it.

TorkseyFern

£18,750 is the answer then, thanks very much

TorkseyFern

Duh £18,570 I mean. 

Dazed_and_C0nfused

TorkseyFern said:

£18,750 is the answer then, thanks very much

Not unless there's something you haven't told us 😉

Bigwheels1111

Just remember if you get over 10k a self assessment will need filling.
It’s quite simple online once registered.
I will need to do one next year.
Apart from name address and employment status, it’s only 2 boxes for me, Benefits other and savings.
Takes about 10 minutes.
But 45 minutes on the phone to HMRC to ask which 2 boxes.

Silverbullet036

Bigwheels1111 said:

Just remember if you get over 10k a self assessment will need filling.
It’s quite simple online once registered.
I will need to do one next year.
Apart from name address and employment status, it’s only 2 boxes for me, Benefits other and savings.
Takes about 10 minutes.
But 45 minutes on the phone to HMRC to ask which 2 boxes.

I will have to do one for my wife next year for the first time so thanks for the info , sounds very simple after registering

Dazed_and_C0nfused

Silverbullet036 said:

Bigwheels1111 said:

Just remember if you get over 10k a self assessment will need filling.
It’s quite simple online once registered.
I will need to do one next year.
Apart from name address and employment status, it’s only 2 boxes for me, Benefits other and savings.
Takes about 10 minutes.
But 45 minutes on the phone to HMRC to ask which 2 boxes.

I will have to do one for my wife next year for the first time so thanks for the info , sounds very simple after registering

It is, where most people go wrong is over thinking it and trying to make it more complicated than it is.

For example a not uncommon question is if you have interest of say £12,000 do you enter £12,000 or knock off £1,000 for the "PSA"?

You just enter the £12,000.  There is no extra allowance for interest, unless it's in an ISA it's all taxable and all taxable income should be entered in the return. 

The subsequent tax calculation will allow the correct Personal Allowance and any 0% rates bands that are available.  Simples!