Interest from savings before being liable for tax

RL11

That example has confused me! What if she estimates her private pension at £900 - is her tax code still 88L (if £170 interest) or is it now 90L?

Dazed_and_C0nfused

RL11 said:

That example has confused me! What if she estimates her private pension at £900 - is her tax code still 88L (if £170 interest) or is it now 90L?

It would be 90L (start tax code allowances 12570 less State Pension 11520 and interest 150 = final tax code allowances 900 = tax code 90L).

For someone with a relatively low income it's the interest deduction that is the changeable aspect.  This will use any spare allowances, so if private pension is £900 and State Pension £11,520 there are only 150 spare allowances.

If private pension was 1050 or more there would be no spare allowances available for the interest.

RL11

So just need to get the estimate on the private pension right and the interest adjustment sorts itself. That's simple enough. Thanks

BlackKnightMonty

My understanding was that ISA withdrawals are mainly tax free?

RL11

BlackKnightMonty said:

My understanding was that ISA withdrawals are mainly tax free?

??? Interest on ISA's are tax free. Withdrawals from ISA's are tax free.

BlackKnightMonty

RL11 said:

BlackKnightMonty said:

My understanding was that ISA withdrawals are mainly tax free?

??? Interest on ISA's are tax free. Withdrawals from ISA's are tax free.

Thanks. Yes one of the previous comments threw me a little.

zagfles

RL11 said:

So just need to get the estimate on the private pension right and the interest adjustment sorts itself. That's simple enough. Thanks

Give the max it could possibly be. It's the brain dead way the HMRC PAYE system works, it's not been updated properly to cope with the 2016 changes to way interest taxation works. 

RL11

Sorted. Told them the new pension amount and they have adjusted the code, so should be no more tax, once the pension provider has been informed.

They still incorrectly explain the reason for the change!

We changed this because:

• your Untaxed interest on savings and investments has been reduced from £162 to £97

sherbie28

If you withdrew your isa interest (I’m assuming it has to be sent to a current account), does it then become taxable income or could you buy something with it straightaway? 

Dazed_and_C0nfused

sherbie28 said:

If you withdrew your isa interest (I’m assuming it has to be sent to a current account), does it then become taxable income or could you buy something with it straightaway? 

Interest from an ISA is exempt from tax.

Any interest earned in a non ISA account you move it to would be taxable.