Interest from savings before being liable for tax

ImmediateAction66666

I am considering taking early retirement and plan to live entirely off the interest on my savings.

I will NOT be receiving a work income. Nor will I be receiving a pension. Am I right in saying the most I can earn from savings interest, before being liable for tax, is £18,570?

As follows:

£12,570 - personal allowance
£1,000 - personal savings allowance
£5,000 - starting savings allowance

TOTAL: £18,570

Mark_d

That looks correct to me

BoxerfanUK

As far as I understand that is correct.

af1963

Plus any interest that you receive from non taxable sources such as an ISA.

xylophone

All Interest arising on any ISA accounts you may have is tax free.

With regard to other interest bearing accounts, if you have no other taxable income at all, then you may receive up to £18,570 in interest

and not be liable for tax.

Nevertheless, interest over £10,000 per annum will require you to register for self assessment.

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

Dazed_and_C0nfused

ImmediateAction66666 said:

I am considering taking early retirement and plan to live entirely off the interest on my savings.

I will NOT be receiving a work income. Nor will I be receiving a pension. Am I right in saying the most I can earn from savings interest, before being liable for tax, is £18,570?

As follows:

£12,570 - personal allowance
£1,000 - personal savings allowance
£5,000 - starting savings allowance

TOTAL: £18,570

Providing you don't apply for Marriage Allowance yes.

But it is a slightly different order.  You must use your Personal Allowance first (£11,310 or £12,570).

Then the savings starter rate band (£5,000 interest income taxed at 0%).

And finally the savings nil rate band (another £1,000 also taxed at 0%).

If you have a lot of headroom you might want to look at adding £3,600 (gross) to a SIPP or personal pension each year and taking it back out to use some Personal Allowance.  A fairly easy £720 profit each year.

Arthurian

You’re not eligible for the starting rate for savings if your other income is £17,570 or more.

RL11

My wife gets a full state pension plus a small private pension, total approx £12,400, so just under personal allowance (until next pension increase if tax threshold remains frozen!). She also got interest last year of approx £600. HMRC seem to have adjusted her private pension tax code on the basis her income is £11520 state + an estimated £600 interest, taking her total income up to £12,120. Thereby only leaving £450 of her tax allowance left and meaning she will pay tax on her private pension. Shouldn't she only pay tax if her state + private > £12,570? And no tax on interest at all until > £6,000?

xylophone

https://forums.moneysavingexpert.com/discussion/comment/79585658/#Comment_79585658

RL11

I sort of get the calculation process now but what action to take now? Ring HMRC and say what? Or leave until they calculate the tax deduction was unnecessary and get the refund in October 2025?!

Dazed_and_C0nfused

RL11 said:

I sort of get the calculation process now but what action to take now? Ring HMRC and say what? Or leave until they calculate the tax deduction was unnecessary and get the refund in October 2025?!

If she updates her estimated income from the private pension to whatever she expects to receive in the current tax year then her tax code will be automatically reviewed and if there are less spare Personal Allowances then a new code issued reducing the tax code deduction for interest.

For example if she estimates her private pension is going to be £880 then her tax code, ignoring the interest, would be 88L (tax code allowances 12,570 less State Pension 11,520 and interest 170 = tax code allowances 880).

If her private pension was expected to be 1050 or more there would be no spare allowances and her tax code would be 105L (tax code allowances 12570 less State Pension 11520).