Tax free interest effect on tax code

B65

I have had several "chats" with HMRC but am none the wiser.  My question is why is my personal allowance reduced by the full amount on credit interest received.  The amount concerned is less that £1k.

Dazed_and_C0nfused

B65 said:

I have had several "chats" with HMRC but am none the wiser.  My question is why is my personal allowance reduced by the full amount on credit interest received.  The amount concerned is less that £1k.

Almost certainly because you cannot use the savings nil rate band (aka Personal Savings Allowance).

Unused Personal Allowance is used by the interest first.  Then the savings starter rate band and only once they have been exhausted can you use the savings nil rate band.

NB.  I'm assuming the tax code adjustment has absolutely no material impact, i.e. you earn (or have a pension) say £8,000 and your tax code is say 1180L so no tax is being deducted?

B65

So if I had earned wages above the pa the credit I terest wouldn't have been reduced from the allowance, is that how it works?

Dazed_and_C0nfused

B65 said:

So if I had earned wages above the pa the credit I terest wouldn't have been reduced from the allowance, is that how it works?

Yes.  Occasionally you might need to update your estimated earnings/pension income to get the right outcome but most of the time it should be accurate enough to not need anything changing.

B65

Thank you   for your help