Tax code reduced but no notice given from HMRC

Toptek

Currently on the Personal Tax Account website and the reason for the reduction is noted as:
"Untaxed interest on savings and investments"
I am under the impression that as my pension below the taxable rate that I would be entitled to £5000 + £1000 of interest before tax is due. Is this I something I need to speak to them about as my interest is way below this?  

Dazed_and_C0nfused

No, you can only use those 0% tax bands once you have used all of your Personal Allowance.

So if you have spare Personal Allowances the interest will use those.

Toptek

Thanks, sorry but I don't understand why my Tax Code has dropped. With next years CPI increase my pension will go above £12480 (my now current code), will it go back up?
I don't understand why it has been reduced, should it not indicate a tax free income of £12750 plus £5000 (starting savings rate limit) and £1000 Personal Allowance.
What happens in April, when, my pension become (hypothetically) £13000? As far as I am aware I shouldn't have any unpaid tax on interest earned.

Dazed_and_C0nfused

You seem to be confusing the facts for each year.

This year you do have spare allowances so the interest uses those before the 0% tax bands can be used.

If next year HMRC estimate your pension income as £13,000 you won't have any spare allowances so assuming your interest isn't high enough to attract a tax liability then your tax code wouldn't be adjusted for interest.

Toptek

Many thanks for that. 

Dazed_and_C0nfused

Obviously you know your own pension amount in more detail than HMRC so if for example they estimate the 2024-25 amount as £12,000 and include untaxed interest giving you a code of say 1200L and you know your pension will actually be £13,000 then you can just update your expected pension via your Personal Tax Account and that will prompt a new tax code calculation.

zagfles

Toptek said:

Thanks, sorry but I don't understand why my Tax Code has dropped. With next years CPI increase my pension will go above £12480 (my now current code), will it go back up?
I don't understand why it has been reduced, should it not indicate a tax free income of £12750 plus £5000 (starting savings rate limit) and £1000 Personal Allowance.
What happens in April, when, my pension become (hypothetically) £13000? As far as I am aware I shouldn't have any unpaid tax on interest earned.

It's the utterly pointless way the HMRC PAYE system operates unfortunately.

Just give them an estimate for next year's income of £13k. Not sure if you can do it yet.