Starting rate for savings

James01

HI,

Could someone please explain the £5000 starting rate for savings?  I thought that you could have £1000 in savings interest before you start to pay tax on your interest.  I've now read about the £5000 starting rate and don't really understand it.

Thanks.

ColdIron

Have a read of this

https://www.moneysavingexpert.com/savings/tax-free-savings/

James01

Thanks ColdIron, that's really helpful. 

[Deleted User]

I am struggling to get my head round this, with the link given,  and I wonder if the Scottish tax system makes a difference.  Would it be acceptable for me to put my income amount and possible interest amount and any one able to look at it and say how much tax I would pay on my savings interest?  If not please ignore, I understand.

It has never been a problem before but it might be by the end of this  tax year and I would like to prepare if I will ow 20% tax.  I really cannot get my head round it at all.

I have a normal basic tax code with the standard non taxable free amount.  My total income, before tax,  for this full tax year will be about £17,704 and I would like to know how much interest I am allowed before paying tax.  My tax code covers all my income which is State Pension and works pension - S78L and I have £57.40 tax deducted every month - single person.  I think my total (no ISA) interest will be about £2,200, never had anything near to this amount before,

if anyone can tell me, thank you very much.  If I am not allowed to ask would you let me know?

[Deleted User]

I don't know how to correct my errors but my Tax code is S79L and not S78L.  The interest I receive (and hope to receive for this tax year) is paid to me without tax being taken off.  If I am to owe 20% tax on my savings interest I would like to be able to make sure I allow for this.

eskbanker

If your non-savings earnings are £17,704 and you'll receive about £2,200 in savings interest, you'll benefit from the personal savings allowance of £1,000 and the other £1,200 will be taxed at 20% (the UK rate), so a tax bill of £240 on the savings, together with the taxation on your pensions.

[Deleted User]

That really helps a lot thank you eskbanker.

Doctor_Who

I am struggling to get my head round this, with the link given,  and I wonder if the Scottish tax system makes a difference.

As above. The Scottish Government only sets non-savings and non-dividend tax rates and bands. Savings interest is taxed as per the UK system (20%/40%).

https://www.litrg.org.uk/tax-guides/tax-basics/what-tax-rates-apply-me#toc-what-tax-rates-apply-to-my-savings-income-

Dazed_and_C0nfused

[Deleted User] said:

I am struggling to get my head round this, with the link given,  and I wonder if the Scottish tax system makes a difference.  Would it be acceptable for me to put my income amount and possible interest amount and any one able to look at it and say how much tax I would pay on my savings interest?  If not please ignore, I understand.

It has never been a problem before but it might be by the end of this  tax year and I would like to prepare if I will ow 20% tax.  I really cannot get my head round it at all.

I have a normal basic tax code with the standard non taxable free amount.  My total income, before tax,  for this full tax year will be about £17,704 and I would like to know how much interest I am allowed before paying tax.  My tax code covers all my income which is State Pension and works pension - S78L and I have £57.40 tax deducted every month - single person.  I think my total (no ISA) interest will be about £2,200, never had anything near to this amount before,

if anyone can tell me, thank you very much.  If I am not allowed to ask would you let me know?

Could you clarify a couple of things.

You say your total income is £17,704.  If that is correct and you haven't applied for Marriage Allowance then you won't be liable to pay any tax on the interest as it will end up being taxed at 0%.

Or do you mean your total non savings non dividend income is £17,704 and you also have non ISA interest of £2,200 on top of that, making total income of £19,904?

If the latter then your tax deductions seem way to low, I would expect you to be paying more like ~£83/month not £57.

[Deleted User]

It is good of you and I am glad that you are willing to help, thanks.  My total income for this tax year, not including my savings interest, is going to be about £17,704. My Tax Code is S79L.  I am not married. As well as this I hope to receive a total of about £2,200 in interest from my savings. Before the recent big increases the interest I received on my savings was very much less.

I got my papers out this morning to check and, I don't know how I got the £57 tax figure and it is a mistake, sorry.  From my bank account statements I pay £82.60 every month in tax apart from one month, so far, when I paid £82.80 tax, not £57, and it is all deducted from my smaller works pension. My State Pension goes into my bank separately with no tax taken off.


This means, I ‘earn’ £17,704 before tax from my pensions and ‘gross’ interest on my savings, not yet taxed, now expected to be about £2,200.     The figure you mention £19,904 is right. In my first question I made a mistake about my tax deduction and I am anxious to keep aside anything I owe in tax from this.

Dazed_and_C0nfused

[Deleted User] said:

It is good of you and I am glad that you are willing to help, thanks.  My total income for this tax year, not including my savings interest, is going to be about £17,704. My Tax Code is S79L.  I am not married. As well as this I hope to receive a total of about £2,200 in interest from my savings. Before the recent big increases the interest I received on my savings was very much less.

I got my papers out this morning to check and, I don't know how I got the £57 tax figure and it is a mistake, sorry.  From my bank account statements I pay £82.60 every month in tax apart from one month, so far, when I paid £82.80 tax, not £57, and it is all deducted from my smaller works pension. My State Pension goes into my bank separately with no tax taken off.

This means, I ‘earn’ £17,704 before tax from my pensions and ‘gross’ interest on my savings, not yet taxed, now expected to be about £2,200.     

The figure you mention £19,904 is right. In my first question I made a mistake about my tax deduction and I am anxious to keep aside anything I owe in tax from this.

In that case you can expect your interest to be taxed like this,

£1,000 x 0% = £0 (savings nil rate aka PSA)
£1,200 x 20% = £240 (savings basic rate)

Total tax due on interest £240

You should get a calculation from HMRC, for 2023-24, in about a years time.  They may prefer to collect the tax due for 2023-24 via your 2025-26 tax code but you can always pay it direct to HMRC if you prefer.