Confused about 'Starting Rate for Savings' and 'Personal Savings Allowance'.

EthicsGradient

The pension tax-free lump sum is not counted in the calculation. You would not enter it on a tax return.

Dazed_and_C0nfused

eyeonretirement said:

If you are allowed £12570 earnings would the 25% tax free lump sum taken along with that count or not count towards earnings when it comes to the starter savings rate of £5000 ? Ie I would like to withdraw £15712.50 (12570 + £3142.50 tfls) and still be able to earn £5000 interest from savings without getting taxed?

A pension TFLS is exactly what it says it is, tax free.

You would ignore it as far as your income tax liability is concerned.

But you would not usually have £12,570 taxable income with £3,142.50 TDLS from the same pension withdrawal.

It is 25% TFLS and 75% taxable income.  So if you took £15712 out you would have a TFLS of £3,928 and taxable income of £11,784.

And if your taxable non savings non dividend income such as pension or earnings is less than £12,570 then you can have an additional £6,000+ interest without paying tax.

You would first use up any spare Personal Allowance and then the £5,000 savings starter rate band and finally the £1,000 savings nil rate band (aka Personal Savings Allowance).

That £6,000 would be "taxed", but at a 0% tax rate.

The above assumes you haven't applied for Marriage Allowance.