Personal Savings Allowance Tax Question

ade1970

Hi there. I'm hoping you knowledgeable folks on here can help me out with this one. My partner is a non tax payer. She gets contribution based ESA £6734 per year and PIP. She received a substantial inheritance in March of this year. Her ESA was reduced to take this into account. As things stand she will earn approximately £7000 come the end of this tax year.

Am I correct in thinking that the ESA is taxable but the PIP isn't?

I would like to know how the personal savings allowance is worked out in this example. Will she pay tax on her interest? If so what is the threshold for this.

I have looked online and through various posts on here and I'm still confused!

Some of her savings can be moved into premium bonds and an ISA if need be.

I appreciate this is a nice problem to have, however my partner suffered a stroke a few years ago and this is making her anxious.

Thanks in advance for your time.

xylophone

https://www.gov.uk/income-tax/taxfree-and-taxable-state-benefits

State benefits that are taxable

• contribution-based Employment and Support Allowance (ESA)

Tax-free state benefits

• Personal Independence Payment (PIP)
• 
  

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

As things stand she will earn approximately £7000 come the end of this tax year.

She has a Personal Allowance of £12,570?

She  will earn £7000  and receive ESA of £6734 in this tax year?

This will be her only income apart from savings interest?

She would be liable for tax  at 20% on £1164 of this non savings income.

She can then earn up to £4836 in non ISA tax free interest ( balance of starter rate for savings and Personal Savings Allowance).

 Interest over this amount would be taxable unless held in an ISA.

If her non-ISA savings interest is over £10,000 she must report it to HMRC.

Dazed_and_C0nfused

She will earn £7000 and receive ESA of £6734 in this tax year?

This will be her only income apart from savings interest?

I'm wondering if the op meant she will earn £7,000 in interest, rather than from a job?


She received a substantial inheritance in March of this year. Her ESA was reduced to take this into account. As things stand she will earn approximately £7000 come the end of this tax year.

ade1970

Thanks for replying.

You are correct Dazed_and_COnfused. Her only income is ESA and PIP. The £7000 will be interest from the inheritance.

Am I to take it she can earn up to £10000 in interest then?

Bigwheels1111

Work out you figures on this total £18,570.
She can earn £12,570 in earnings, benefits or interest tax free.
Then £5,000 in interest, starter savings rate. Tax free.
Then £1,000 Personal savings allowance interest tax free.
A total of £18,570.
So £18,570 - £7,000 ESA leaves £11,570 of tax free interest per year.
As above if total interest is over 10k a self assessment return will be requested by HMRC.
Do that make it clear for you.

I earn £4,050 a year but get 11k in interest.
I will need to file a tax return, I could still get £3,520 more interest tax free.

ade1970

Thanks Bigwheels1111.

That is a very clear explanation.

£11,570 can be earned in interest after the ESA income. Anything over £10,000, a self assessment return will be required.

Is it as simple as that?

Dazed_and_C0nfused

ade1970 said:

Thanks Bigwheels1111.

That is a very clear explanation.

£11,570 can be earned in interest after the ESA income. Anything over £10,000, a self assessment return will be required.

Is it as simple as that?

Yes.

When interest is £10,000 or more a tax return should should be completed even if no tax is actually owed.

ade1970

Thank you very much for your help guys 👍