Untaxed Savings Interest - Confused

LoopySnooker

Hi all,

So I thought I’d got my head around taxation on savings interest but on our new tax codes for 24/25 there’s deductions to allow for ‘Untaxed interest on savings and investments’. Now confused !

To clarify, my understanding is that you can earn up to a maximum of £18570 between earnings/pensions and savings interest, based on £12570 PA, £1000 Personal Savings Allowance and £5000 Starting Rate for Savings.

Let’s say in 23/24 you had roughly £12k in pensions and £5.5k in savings interest, why would there be a deduction of £130 from the new 24/25 tax code ?

Thanks in advance for any help and info. Sorry if I’m being a but thick too !

eskbanker

It does seem counterintuitive, but is just the way the HMRC systems work - if the tax code is calibrated so that you don't pay tax on your pension income, then doing it this way doesn't actually have any impact, either in terms of how much tax is deducted via PAYE during the year (none) or how much you'd be liable to pay once the full annual position is known.

ColdIron

It might be to collect tax due from 2022/23. It would be unusual to see your tax code change this year due to income or interest from last year

LoopySnooker

ColdIron said:

It might be to collect tax due from 2022/23. It would be unusual to see your tax code change this year due to income or interest from last year

I looked at that funny enough but the interest in 22/23 was minuscule, approx £130 coincidentally.

Bigwheels1111

Becaue they have no idea what they are doing, That sound right to me.

I'm having a few probs with them myself.

On your figures there is no tax to pay.

I did my self assessment last week, still not updated.

But at least it said I owe NO tax.

Now just waiting for one system to catch up with another I guess.

If you call and ask, they will not know why, thats what I found anyway.

LoopySnooker

Just looked at mine again, they have deducted £78 from my 24/25 tax code, which matches up with my 22/23 savings interest. Why would they do this when you get £1000 tax free per year anyway ??

LoopySnooker

It seems to get worse the more I look. I also had a deduction of £850 on mine to allow for a tax underpayment apparently with absolutely no pointers on what it refers to. Did the online chat and managed to get that removed but how many people does this happen to and they end up paying too much tax. Does not inspire you with much confidence.

Albermarle

LoopySnooker said:

Just looked at mine again, they have deducted £78 from my 24/25 tax code, which matches up with my 22/23 savings interest. Why would they do this when you get £1000 tax free per year anyway ??

As already said it is a odd way of working they have. However you will not actually pay more tax than you should.

LoopySnooker

Albermarle said:

LoopySnooker said:

Just looked at mine again, they have deducted £78 from my 24/25 tax code, which matches up with my 22/23 savings interest. Why would they do this when you get £1000 tax free per year anyway ??

As already said it is an odd way of working they have. However you will not actually pay more tax than you should.

How come ? Surely if I earn £12570 then I’ll end up paying tax on anything above £12492 which is incorrect. During the online chat they did say they were waiting for the banks to confirm exact figures, which may end up making it worse as I’ve had a lot more interest during the 23/24 financial year. Then I’ll have my wife’s to try and resolve which will be even more than mine. I’ve tried to be careful and plan things with our PA, to spread the interest but this seems like lots of faffing around for no reason.

It just seems a massively over complicated way of doing things but I shouldn’t really be surprised with anything the Government touches.

eskbanker

LoopySnooker said:

Albermarle said:

LoopySnooker said:

Just looked at mine again, they have deducted £78 from my 24/25 tax code, which matches up with my 22/23 savings interest. Why would they do this when you get £1000 tax free per year anyway ??

As already said it is an odd way of working they have. However you will not actually pay more tax than you should.

How come ? Surely if I earn £12570 then I’ll end up paying tax on anything above £12492 which is incorrect. 

You said your PAYE income was less than that, so no tax will be deducted via that route, and you'll only pay tax on other income if applicable when calculating with actual figures after the end of the year.

LoopySnooker

eskbanker said:

LoopySnooker said:

Albermarle said:

LoopySnooker said:

Just looked at mine again, they have deducted £78 from my 24/25 tax code, which matches up with my 22/23 savings interest. Why would they do this when you get £1000 tax free per year anyway ??

As already said it is an odd way of working they have. However you will not actually pay more tax than you should.

How come ? Surely if I earn £12570 then I’ll end up paying tax on anything above £12492 which is incorrect. 

You said your PAYE income was less than that, so no tax will be deducted via that route, and you'll only pay tax on other income if applicable when calculating with actual figures after the end of the year.

Sorry, I’m probably confusing everyone because I’m trying to work out mine and my wife’s !  Hers is approx £12k pensions, no other income, except for the savings interest.

My income is currently approx £12k PAYE for a part time role but will probably end up being £13k + with a few extra hours. So it could make a difference, especially for my wife as with savings interest she may end up with £18570. 

My main concern is what will happen next year, will she initially have a much larger reduction of the tax code due to possibly £6.5k in interest this year ? Next year she’ll be claiming her SP so we want things to be correct. I don’t want to be constantly contacting HMRC to straighten things out.

Thanks again to everyone for their comments though.