Untaxed Savings Interest - Confused

Dazed_and_C0nfused

LoopySnooker said:

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.

I think you are missing the fundamentals here.

The tax code deduction is made because you/your wife have unused tax code allowances and those allowances are used before either of the 0% tax bands for interest can be used.

If your PAYE income was estimated at say £13,000 then there would be no spare allowance and no coding deduction would be made (unless there was tax payable on the interest which could be collected via the tax code).

If you update your estimated earnings to £13,000 on your Personal Tax Account you will get a new tax code without the interest coding deduction (assuming the interest will all then be taxable at 0%).

If your wife's earnings/pensions will be more than £12,570 then she don't have a tax code deduction either.  Although this might not occur until her State Pension starts and HMRC include that in her tax code for the first time.

xylophone

I don’t want to be constantly contacting HMRC to straighten things out.

But you may well have to.....

https://forums.moneysavingexpert.com/discussion/comment/80510722/#Comment_80510722

For the current tax year HMRC have simply deducted the amount of her state pension from her Personal Allowance giving a tax code 

representing the balance to set against her small occupational pension (which is the logical thing to do).

She will become a basic rate tax payer for the first time in years because of the increase in state pension.

However, she will still have around £4000 of the starting rate for savings to use and £1000 of the personal savings allowance and will 

make sure to use her full ISA Allowance as required.

frostymorning

Informing HMRC of savings interest?
I have read several times on the gov.uk website and when ringing up that if I’m full time employment you don’t need to tell HMRC about savings interest as they will automatically deduct it. Is this correct? 

I tried to ring to ask a human but was on hold for ages and gave up.

Albermarle

Paying tax through PAYE? — MoneySavingExpert Forum

Does HMRC automatically claim tax on Savings? — MoneySavingExpert Forum