Starting rate for savings

Burnham2012

I understand that the starting rate for savings allows one to earn up to £5000 in interest, tax free, if other income is below £12,570. 

My question is :-
Does this still work in reverse?
I.e.  if savings interest is £12,570 and one withdrew £5000 from a pension (taxable withdrawal) - would there be any tax due on this? (assuming no other income).

Dazed_and_C0nfused

Burnham2012 said:

I understand that the starting rate for savings allows one to earn up to £5000 in interest, tax free, if other income is below £12,570. 

My question is :-
Does this still work in reverse?
I.e.  if savings interest is £12,570 and one withdrew £5000 from a pension (taxable withdrawal) - would there be any tax due on this? (assuming no other income).

ISA's are tax free, normal savings interest is all taxable.

If you had pension income of £5,000 and interest of £12,570 then the pension income would use the first £5,000 of the Personal Allowance.

The remaining £7,570 Personal Allowance would be used by the interest.

The rest of the interest (£5,000) would all be taxed but as it falls into the savings starter rate band it's all taxed at 0%.  So no tax payable.

If the person had applied for Marriage Allowance then there would only be spare Personal Allowance of £6,310 (after the pension income).  This would be used by the interest leaving £6,260 of the interest to be taxed.

And this would be taxed like this

£5,000 x 0% = £0.00 (savings starter rate)
£1,000 x 0% = £0.00 (savings nil rate)
£260 x 20% = £52.00 (savings basic rate)

Total tax payable £52

Burnham2012

Many thanks Indeed 👍. 

I am no longer dazed and confused !!
great stuff thank you 

Bigwheels1111

NO tax to pay from what I see.

I get 4k carers allowance

over 10k interest.

£12,570 tax free allowance, made up from wages, pension, interest or a mix of all 3.

£5,000 starter rate + £1,000 PSA.

£18,570 in total.

So your 5k pension + Savings interes = £17,570 no tax

Plus £1,000 PSA still to be used.

As interest is over 10k a self assessment return will be needed.

xylophone

A person has taken the full 25% tax free PCLS from his pension.

His only income is from his pension and savings interest. His total non ISA interest is £12,570.

He  takes £5000  in income from the pension.

This uses  £5000 of his Personal Allowance.

Then his  non ISA savings interest uses  the remaining £7570 of the PA.

He may then use the Starter Rate for savings - £5000 of interest will be taxed at 0%.

He may then use the Personal Savings Allowance. £1000 of interest will be taxed at 0%.

He will be in self assessment as his non isa savings interest is over £10,000.

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

Burnham2012

Thank you all for your help.
problem solved 👍