We'd like to remind Forumites to please avoid political debate on the Forum. This is to keep it a safe and useful space for MoneySaving discussions. Threads that are - or become - political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.
We're aware that dates on the Forum are not currently showing correctly. Please bear with us while we get this fixed, and see Site feedback for updates.

Starting rate for savings. How does it work.

I am confused about the above where non savings income is say £5000 - state pension - and interest is say £15000. Does the tax free allowance still comprise of personal allowance £12,570, starting rate for savings £5000 and personal savings allowance £1000, total £18,570, leaving tax payable on £1430?

All the examples I have seen, including HMRC website, only seem to have total amounts below the £18,570 threshold.

Thanks
«1

Comments

  • Assuming you haven't applied for Marriage Allowance and therefore have a Personal Allowance of £12,570 you would be taxed as follows,

    State Pension £5,000 - covered by Personal Allowance
    Interest £15,000
    £7,570 covered by Personal Allowance
    £5,000 taxed at 0% (savings starter rate)
    £1,000 taxed at 0% (savings nil rate)
    £1,430 taxed at 20% (savings basic rate)

    In that situation (interest is at least £10,000) you would need to register for Self Assessment and complete a tax return.
  • And you might want to double your check your annual State Pension amount, it's often worked out incorrectly in these posts.
  • Albermarle
    Albermarle Posts: 25,993 Forumite
    10,000 Posts Sixth Anniversary Name Dropper
    Also if you are earning so much interest, you could well be holding too much cash, as opposed to long term investments.
  • SiliconChip
    SiliconChip Posts: 1,662 Forumite
    1,000 Posts Third Anniversary Name Dropper
    Also if you are earning so much interest, you could well be holding too much cash, as opposed to long term investments.

    While you're right in principle, and quite possibly in practice (you'd probably need in the region of £4-500,000 in cash savings at current interest rates to make £15K), someone who is over state pension age may well wish to have their assets in liquid form rather than invested for the long term. Or of course the OP may already have significant amounts invested and the cash is just spending money :D
  • May I ask, if my wife has an income of £4000 per year, and we will have approximately £270k put into a fixed rate savings of about 6% currently, earning about £14k - £15k interest per year. As pretty much all of the savings interest and income falls below the £18,570 for tax free earnings, does that mean she would pay no tax at all so long as it was under that threshold? Or does earning that much interest each year mean we'd still be liable for some tax?
  • May I ask, if my wife has an income of £4000 per year, and we will have approximately £270k put into a fixed rate savings of about 6% currently, earning about £14k - £15k interest per year. As pretty much all of the savings interest and income falls below the £18,570 for tax free earnings, does that mean she would pay no tax at all so long as it was under that threshold? Or does earning that much interest each year mean we'd still be liable for some tax?
    Has she applied for Marriage Allowance?

    Is the £4,000 non savings, non dividend income such as taxable pension, wages, rental income, business profits etc?

    Can you give a specific interest amount you expect she will receive.  It will be an estimate but easier to answer with an actual figure rather than a range.
  • xylophone
    xylophone Posts: 45,426 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    Do you mean that the £270,000 is in an account in your wife's name only or is it in a joint account?

     If in your wife's sole  name, in a full  tax year at 6%, interest would be £16,200.

    She would have non savings income of £4000.

    This would be covered by her Personal Allowance.

    £8,570 of the interest would be covered by the PA.

    Of the remaining £7,630, £5,000 would be covered by the Starter Rate for savings and £1000 by the Personal Savings Allowance.

    The remaining £1,630 would be taxable at 20%.

    She would need to advise HMRC of her situation as the interest she receives is over £10,000 per annum.
  • Albermarle
    Albermarle Posts: 25,993 Forumite
    10,000 Posts Sixth Anniversary Name Dropper
    edited 1 July 2023 am31 10:43AM
    Also if you are earning so much interest, you could well be holding too much cash, as opposed to long term investments.

    While you're right in principle, and quite possibly in practice (you'd probably need in the region of £4-500,000 in cash savings at current interest rates to make £15K), someone who is over state pension age may well wish to have their assets in liquid form rather than invested for the long term. Or of course the OP may already have significant amounts invested and the cash is just spending money :D
    Of course we do not know enough about the OP's situation ( or about the new poster who also has a lot of cash) to recommend any particular course of action.
    However it is known that many people tend to hold a lot of cash and shy away from investing, which is most likely to their long term financial detriment, even if they are retired.
    My in laws being a prime example !

  • May I ask, if my wife has an income of £4000 per year, and we will have approximately £270k put into a fixed rate savings of about 6% currently, earning about £14k - £15k interest per year. As pretty much all of the savings interest and income falls below the £18,570 for tax free earnings, does that mean she would pay no tax at all so long as it was under that threshold? Or does earning that much interest each year mean we'd still be liable for some tax?
    Has she applied for Marriage Allowance?

    Is the £4,000 non savings, non dividend income such as taxable pension, wages, rental income, business profits etc?

    Can you give a specific interest amount you expect she will receive.  It will be an estimate but easier to answer with an actual figure rather than a range.
    Hi Dazed and Confused

    We already have the marriage allowance sorted out so my tax code has that taken into account already. She gets carers allowance as she cares for my autistic son so doesn't work. But as she doesn't work this hasn't been an issue in the past. We're selling our house, banking the equity (about £270k) and using the interest to help towards paying the rental house we'll stay in until the kids finish school in 3 years, then move up north where the people are nicer and houses cheaper. 😂

    I imagine we'll lock away most of the money into 3 separate high interest year or two year fixed rate accounts so we're covered by the £85k protection. At the moment it will be about 5.5% - 6% annual interest.
  • xylophone said:
    Do you mean that the £270,000 is in an account in your wife's name only or is it in a joint account?

     If in your wife's sole  name, in a full  tax year at 6%, interest would be £16,200.

    She would have non savings income of £4000.

    This would be covered by her Personal Allowance.

    £8,570 of the interest would be covered by the PA.

    Of the remaining £7,630, £5,000 would be covered by the Starter Rate for savings and £1000 by the Personal Savings Allowance.

    The remaining £1,630 would be taxable at 20%.

    She would need to advise HMRC of her situation as the interest she receives is over £10,000 per annum.
    Thank you for that useful info. The accounts will all be in her name as she only gets £4000 per year in carers allowance. So we need to let HMRC know as we'll get more than £10k interest each year, but as long as the total amount falls within the £12.570, £5k starters savings, and the £1k PSA then we'll pay no tax or just a small amount of it's over that?
Meet your Ambassadors

🚀 Getting Started

Hi new member!

Our Getting Started Guide will help you get the most out of the Forum

Categories

  • All Categories
  • 348.4K Banking & Borrowing
  • 252.1K Reduce Debt & Boost Income
  • 452.4K Spending & Discounts
  • 241K Work, Benefits & Business
  • 617.3K Mortgages, Homes & Bills
  • 175.7K Life & Family
  • 254.1K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 16K Discuss & Feedback
  • 15.1K Coronavirus Support Boards

Is this how you want to be seen?

We see you are using a default avatar. It takes only a few seconds to pick a picture.