Interest on savings for low earner who is also availing of wife's transfer of allowence

fearbeag

I’m hoping someone can help me here as I’ve got fairly substantial savings and with interest rates rising I’m unsure as to what I can earn in interest before I pay tax on them.The situation is as follows … 

My tax code is 170M and this is arrived at through my personal allowance of £12570 plus transfer of allowance from my wife less my state pension of £12,123. So it’s £12,570 plus £1260 = £13830 minus State pension £12,123 = £1707. I take a small private pension of £2160 a year so therefore pay tax on the difference between my allowance of £1707 and the £2160 pension. So it is £ 2160 minus £ 1707 which is £453.00 taxable . My query therefore is this ….. Given that there is a personal Savings allowance of £1000.00 plus the starting rate on savings being £5000, Am I allowed to earn £6000.00 minus £453.00 in savings interest before paying tax on it.  i.e. £5,547.00, or is it compromised by me having availed of my wife’s marriage allowance which would bring it down to (£5547 minus £1260) a figure of £4287.00. I’m fairly confident that the answer is either £5547 or £4287. I just don’t know which and would appreciate any help     

Dazed_and_C0nfused

@fearbeag

It's the lower figure.  You cannot have a Personal Allowance greater than £12,570.  As the recipient of Marriage Allowance you get a tax reduction, worth £252, not an increase in your Personal Allowance.

So if your pension income is £14,283 (£12,123 + £2,160) then you will be liable to basic rate tax on £1,713 (but will get £252 knocked off the tax due).

Assuming this is your only non savings non dividend income (earnings, pension, self employment, rental income etc) then you will have the following interest income which can be taxed at 0% (in this specific order),

£3,287 (savings starter rate band) then 
£1,000 (saving nil rate band aka PSA)

£4,287 in total before 20% tax is paid on interest.

Albermarle

Plus any interest on savings in a Cash ISA(s)

threlkeld53

@ Dazed_and_C0nfused  that's a good, concise explanation. I once asked a similar question some months ago. Have noticed that the issues of PSA & Savers Starting Rate seem to be queried a lot on here.

In the OP's example, how would it work for his wife, where she is passing on to the husband, 10% of her marriage allowance?
For simplicity, let's use same figures, £14,283 income - £12,570, leaving £1,713 taxable. 

Dazed_and_C0nfused

threlkeld53 said:

@ Dazed_and_C0nfused  that's a good, concise explanation. I once asked a similar question some months ago. Have noticed that the issues of PSA & Savers Starting Rate seem to be queried a lot on here.

In the OP's example, how would it work for his wife, where she is passing on to the husband, 10% of her marriage allowance?
For simplicity, let's use same figures, £14,283 income - £12,570, leaving £1,713 taxable. 

With interest rates increasing I suspect more and more people are realising they don't really understand how tax on savings actually works.

Previously they've probably been aware of the Personal Savings "Allowance" and thought that was all that mattered, even if wasn't in reality actually of any use to them.

The Marriage Allowance applicant does get a different Personal Allowance, £11,310 at the moment.

So if they had pension income of £14,283 they would pay basic rate tax on £2,973 meaning they had a savings starter rate band of £2,027.  And once that was used they would have the £1,000 savings nil rate band available to use.

So £3,027 of taxable interest could be received before paying any tax on it.

fearbeag

Dazed_and_C0nfused said:

threlkeld53 said:

@ Dazed_and_C0nfused  that's a good, concise explanation. I once asked a similar question some months ago. Have noticed that the issues of PSA & Savers Starting Rate seem to be queried a lot on here.

In the OP's example, how would it work for his wife, where she is passing on to the husband, 10% of her marriage allowance?
For simplicity, let's use same figures, £14,283 income - £12,570, leaving £1,713 taxable. 

With interest rates increasing I suspect more and more people are realising they don't really understand how tax on savings actually works.

Previously they've probably been aware of the Personal Savings "Allowance" and thought that was all that mattered, even if wasn't in reality actually of any use to them.

The Marriage Allowance applicant does get a different Personal Allowance, £11,310 at the moment.

So if they had pension income of £14,283 they would pay basic rate tax on £2,973 meaning they had a savings starter rate band of £2,027.  And once that was used they would have the £1,000 savings nil rate band available to use.

So £3,027 of taxable interest could be received before paying any tax on it.

Thanks for all the information. It's certainly very much appreciated. As you rightly point out, because my wife has passed on 10% of her allowence to me, her personal allowence is £11,310.00. Her state pension is just £8,684.00 plus a small private pension  of £1980.00 giving her a total income of £10,664. As this is £640.00.00 below her personal allowence of £11,310.00 am I right in thinking that if her only other income is from savings interest that she could in fact get £6,440.00 in savings interest before it becomes taxable. Thanks in advance 

Dazed_and_C0nfused

fearbeag said:

Dazed_and_C0nfused said:

threlkeld53 said:

@ Dazed_and_C0nfused  that's a good, concise explanation. I once asked a similar question some months ago. Have noticed that the issues of PSA & Savers Starting Rate seem to be queried a lot on here.

In the OP's example, how would it work for his wife, where she is passing on to the husband, 10% of her marriage allowance?
For simplicity, let's use same figures, £14,283 income - £12,570, leaving £1,713 taxable. 

With interest rates increasing I suspect more and more people are realising they don't really understand how tax on savings actually works.

Previously they've probably been aware of the Personal Savings "Allowance" and thought that was all that mattered, even if wasn't in reality actually of any use to them.

The Marriage Allowance applicant does get a different Personal Allowance, £11,310 at the moment.

So if they had pension income of £14,283 they would pay basic rate tax on £2,973 meaning they had a savings starter rate band of £2,027.  And once that was used they would have the £1,000 savings nil rate band available to use.

So £3,027 of taxable interest could be received before paying any tax on it.

Thanks for all the information. It's certainly very much appreciated. As you rightly point out, because my wife has passed on 10% of her allowence to me, her personal allowence is £11,310.00. Her state pension is just £8,684.00 plus a small private pension  of £1980.00 giving her a total income of £10,664. As this is £640.00.00 below her personal allowence of £11,310.00 am I right in thinking that if her only other income is from savings interest that she could in fact get £6,440.00 in savings interest before it becomes taxable. Thanks in advance 

Not quite no.  Unless it's in an ISA it's all taxable.

She has unused Personal Allowance of £646 so she can earn £6,646 before any tax would be payable on the interest.

£646 covered by Personal Allowance
£5,000 taxed at 0% (savings starter rate)
£1,000 taxed at 0% (savings nil rate)

fearbeag

Dazed_and_C0nfused said:

fearbeag said:

Dazed_and_C0nfused said:

threlkeld53 said:

@ Dazed_and_C0nfused  that's a good, concise explanation. I once asked a similar question some months ago. Have noticed that the issues of PSA & Savers Starting Rate seem to be queried a lot on here.

In the OP's example, how would it work for his wife, where she is passing on to the husband, 10% of her marriage allowance?
For simplicity, let's use same figures, £14,283 income - £12,570, leaving £1,713 taxable. 

With interest rates increasing I suspect more and more people are realising they don't really understand how tax on savings actually works.

Previously they've probably been aware of the Personal Savings "Allowance" and thought that was all that mattered, even if wasn't in reality actually of any use to them.

The Marriage Allowance applicant does get a different Personal Allowance, £11,310 at the moment.

So if they had pension income of £14,283 they would pay basic rate tax on £2,973 meaning they had a savings starter rate band of £2,027.  And once that was used they would have the £1,000 savings nil rate band available to use.

So £3,027 of taxable interest could be received before paying any tax on it.

Thanks for all the information. It's certainly very much appreciated. As you rightly point out, because my wife has passed on 10% of her allowence to me, her personal allowence is £11,310.00. Her state pension is just £8,684.00 plus a small private pension  of £1980.00 giving her a total income of £10,664. As this is £640.00.00 below her personal allowence of £11,310.00 am I right in thinking that if her only other income is from savings interest that she could in fact get £6,440.00 in savings interest before it becomes taxable. Thanks in advance 

Not quite no.  Unless it's in an ISA it's all taxable.

She has unused Personal Allowance of £646 so she can earn £6,646 before any tax would be payable on the interest.

£646 covered by Personal Allowance
£5,000 taxed at 0% (savings starter rate)
£1,000 taxed at 0% (savings nil rate)

Thanks for that. I Messed up the earlier calculation. So when you say it's all taxable do you mean that particularly the £6K and the £1K is in fact taxable.... but at the nil rate.  

Dazed_and_C0nfused

fearbeag said:

Dazed_and_C0nfused said:

fearbeag said:

Dazed_and_C0nfused said:

threlkeld53 said:

@ Dazed_and_C0nfused  that's a good, concise explanation. I once asked a similar question some months ago. Have noticed that the issues of PSA & Savers Starting Rate seem to be queried a lot on here.

In the OP's example, how would it work for his wife, where she is passing on to the husband, 10% of her marriage allowance?
For simplicity, let's use same figures, £14,283 income - £12,570, leaving £1,713 taxable. 

With interest rates increasing I suspect more and more people are realising they don't really understand how tax on savings actually works.

Previously they've probably been aware of the Personal Savings "Allowance" and thought that was all that mattered, even if wasn't in reality actually of any use to them.

The Marriage Allowance applicant does get a different Personal Allowance, £11,310 at the moment.

So if they had pension income of £14,283 they would pay basic rate tax on £2,973 meaning they had a savings starter rate band of £2,027.  And once that was used they would have the £1,000 savings nil rate band available to use.

So £3,027 of taxable interest could be received before paying any tax on it.

Thanks for all the information. It's certainly very much appreciated. As you rightly point out, because my wife has passed on 10% of her allowence to me, her personal allowence is £11,310.00. Her state pension is just £8,684.00 plus a small private pension  of £1980.00 giving her a total income of £10,664. As this is £640.00.00 below her personal allowence of £11,310.00 am I right in thinking that if her only other income is from savings interest that she could in fact get £6,440.00 in savings interest before it becomes taxable. Thanks in advance 

Not quite no.  Unless it's in an ISA it's all taxable.

She has unused Personal Allowance of £646 so she can earn £6,646 before any tax would be payable on the interest.

£646 covered by Personal Allowance
£5,000 taxed at 0% (savings starter rate)
£1,000 taxed at 0% (savings nil rate)

Thanks for that. I Messed up the earlier calculation. So when you say it's all taxable do you mean that particularly the £6K and the £1K is in fact taxable.... but at the nil rate.  

Yes.  Unless it's from an ISA interest will normally be taxable (odd NS&I accounts might be an exception).

It may be covered by the Personal Allowance (£11,310 or £12,570 for most people) but if not it is taxable and will be taxed.

But in the slightly strange tax world we live in up to £6,000 of interest can be taxed at 0%.  Plus £1,000 of dividends can also be taxed at 0%.

For most people it makes no material difference but say you had pension income of £100,000 plus interest of £500.  That £500 would be taxed at 0% by virtue of the savings nil rate but the total adjusted net income would be £100,500* and therefore the Personal Allowance would be tapered from £12,570 down to £12,320 meaning a higher overall tax liability.

Same principle apples with Married Couple's Allowance and High Income Child Benefit Charge.

*Assuming no Gift Aid or pension contributions