Scared of exceeding PSA

friolento

I have seen many posts here and on other social media where people got anxious about exceeding their personal savings allowance.

There are obvious ways of avoiding this - ISA, increased pension contributions, Premium Bonds, using dividend and CGT allowance, investing medium/long term, making donations, gifting etc etc

But assuming you have already fully used any and all of these - - - - what is the issue of having to pay tax on some of the interest? You are still left with at least 55%, more likely 60% or even more likely 80% of the interest. Why would you not want that 55/60/80%? What am I missing?

eskbanker

Many have an irrational aversion to paying tax as a point of principle, even though the logical position (as expressed frequently on here) is indeed that 80% of something is better than 100% of nothing.

qbadger

I think it may have something to do with loss aversion. Having to give up some of the interest received to the taxman seems to trigger a disproportionate emotional response compared to just receiving a lower net interest.

Edited to add:
Some people may also be labouring under the impression that exceeding the allowance will result in a lot more hassle and complicated paperwork to file with HMRC, so would prefer not having to deal with that and just accept a lower income instead

wmb194

There's also a commonly expressed fear of having to deal with HMRC and, usually incorrectly, that they'll need to begin filing Self Assessment tax returns (the terror!).

Dazed_and_C0nfused

In addition to all the points above quite a lot of people simply don't understand how income tax, and particularly tax on interest, actually works.

It's not uncommon for some of those worrying about exceeding the savings nil rate band (aka PSA) to not even be in a position to actually utilise it as they have large amounts of spare Personal Allowance and/or savings starter rate band available.  Which means they will never ever be able to benefit from the savings nil rate band.

Bigwheels1111

I can’t understand it either.
2 years ago 100k would have given 1k, now 6.2k interest.
Even after tax I would be jumping for joy.

deinoflex

The reason I don't exceed the £1000 is because of the messy nature of the collection. You finish your interest year in April, but they don't change your code till - when? 6 months later? They you have to check it, which I wouldn't have a problem with as I keep a log. Then if it's wrong you'd need to talk to them. If it's right, you have the delayed effect of repaying it, it would be easier to just pay a lump sum to repay it. Then, I hear, they base the following year's tax code on the assumption you'll earn the same amount of interest again. So you're stuck in a continuous procedure. Which makes the alternative, make sure you don't exceed it, so much easier, less worry.

I put the excess money into my GIA for next year's S&S ISA.

Thumbs_Up

My savings interest alone for 2023/24 will likely take me past £18,750* personnel tax allowance, I was hoping to keep under this, but for my sins I have accepted a temporary job over the Christmas period so I’m expecting to pay tax on savings interest and payed income combined for the first time in 3 years.

No doubt my tax payments will be wasted by this or the next government. (yes, I know some schools are falling down along with a lot other problems this country has, and yes, I have no business complaining about this country’s problems , because I don’t).

 *Yes, I do have a lot.

 

Bigwheels1111

Thumbs_Up said:

My savings interest alone for 2023/24 will likely take me past £18,750* personnel tax allowance, I was hoping to keep under this, but for my sins I have accepted a temporary job over the Christmas period so I’m expecting to pay tax on savings interest and payed income combined for the first time in 3 years.

No doubt my tax payments will be wasted by this or the next government. (yes, I know some schools are falling down along with a lot other problems this country has, and yes, I have no business complaining about this country’s problems , because I don’t).

 *Yes, I do have a lot.

 

I’m with you, in three year I will have the same problem.
The Self assessment is only 2 boxes, so not worried about that.
After paying 10k CGT 3 years ago is still eating at my soul.

Thumbs_Up

Bigwheels1111 said:

I can’t understand it either.
2 years ago 100k would have given 1k, now 6.2k interest.
Even after tax I would be jumping for joy.

 3 years ago i was getting 0.5% via NS&I on £500,000.

friolento

deinoflex said:

The reason I don't exceed the £1000 is because of the messy nature of the collection. You finish your interest year in April, but they don't change your code till - when? 6 months later? They you have to check it, which I wouldn't have a problem with as I keep a log. Then if it's wrong you'd need to talk to them. If it's right, you have the delayed effect of repaying it, it would be easier to just pay a lump sum to repay it. Then, I hear, they base the following year's tax code on the assumption you'll earn the same amount of interest again. So you're stuck in a continuous procedure. Which makes the alternative, make sure you don't exceed it, so much easier, less worry.

I put the excess money into my GIA for next year's S&S ISA.

If I understand correctly, your aproach is to stress about not exceeding your PSA in a rising interest market, to gamble with short-term investments, in the knowledge/hope that you won't have to pay CGT,  rather than securing actual growth. Each to their own, I suppose.