Tax on savings if no income

jojopop_2

Hi everyone,

I have a question regarding savings income and tax allowances for my wife, who is a homemaker with no income. If we put money into her savings accounts (outside of an ISA), does she need to pay tax after earning £1,000 in savings income in a year? Or does it work such that after the initial £1,000, it will start eating into her tax-free Personal Allowance, allowing her to earn an additional £12,570 before paying any tax?

Thanks for your help!

Dazed_and_C0nfused

jojopop_2 said:

Hi everyone,

I have a question regarding savings income and tax allowances for my wife, who is a homemaker with no income. If we put money into her savings accounts (outside of an ISA), does she need to pay tax after earning £1,000 in savings income in a year? Or does it work such that after the initial £1,000, it will start eating into her tax-free Personal Allowance, allowing her to earn an additional £12,570 before paying any tax?

Thanks for your help!

The £1,000 is highly unlikely to be of any help to her.

She has to use her Personal Allowance (£11,310 or £12,570) and any available savings starter rate band (up to £6,000 taxed at 0%) before she can use that £1,000.

So an absolute minimum (if she has applied for Marriage Allowance) of £16,310 before the £1,000 becomes relevant.

Rodders53

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

Read the above. It seems clear enough?

EthicsGradient

Your wife will be able to get the total of the Personal Allowance, and the £1,000, and another £5,000 ( the "starting rate of 0% for savers" who have not reached the Personal Allowance with other income like wages, pension or income from owning a property). 

Note that she can also transfer £1,260 of her Personal Allowance to you, if you are a basic rate taxpayer - see Marriage Allowance: How it works - GOV.UK (www.gov.uk) (if you're in Scotland, see link for further details).

TBC15

EthicsGradient said:

Your wife will be able to get the total of the Personal Allowance, and the £1,000, and another £5,000 ( the "starting rate of 0% for savers" who have not reached the Personal Allowance with other income like wages, pension or income from owning a property). 

Note that she can also transfer £1,260 of her Personal Allowance to you, if you are a basic rate taxpayer - see Marriage Allowance: How it works - GOV.UK (www.gov.uk) (if you're in Scotland, see link for further details).

How does transfer of personal allowance affect the two parties with regard to the £1000 and £5000 rates if both parties are using the adjusted personal allowances with pension income?

Dazed_and_C0nfused

TBC15 said:

EthicsGradient said:

Your wife will be able to get the total of the Personal Allowance, and the £1,000, and another £5,000 ( the "starting rate of 0% for savers" who have not reached the Personal Allowance with other income like wages, pension or income from owning a property). 

Note that she can also transfer £1,260 of her Personal Allowance to you, if you are a basic rate taxpayer - see Marriage Allowance: How it works - GOV.UK (www.gov.uk) (if you're in Scotland, see link for further details).

How does transfer of personal allowance affect the two parties with regard to the £1000 and £5000 rates if both parties are using the adjusted personal allowances with pension income?

The transferror has a lower Personal Allowance so could use up some of the savings starter rate band if non savings non dividend income exceeds that.

No impact on the recipient as their Personal Allowance is unchanged.

TBC15

Dazed_and_C0nfused said:

TBC15 said:

EthicsGradient said:

Your wife will be able to get the total of the Personal Allowance, and the £1,000, and another £5,000 ( the "starting rate of 0% for savers" who have not reached the Personal Allowance with other income like wages, pension or income from owning a property). 

Note that she can also transfer £1,260 of her Personal Allowance to you, if you are a basic rate taxpayer - see Marriage Allowance: How it works - GOV.UK (www.gov.uk) (if you're in Scotland, see link for further details).

How does transfer of personal allowance affect the two parties with regard to the £1000 and £5000 rates if both parties are using the adjusted personal allowances with pension income?

The transferror has a lower Personal Allowance so could use up some of the savings starter rate band if non savings non dividend income exceeds that.

No impact on the recipient as their Personal Allowance is unchanged.

I’m a bit confused with transferor using the savings starter rate with non savings income.

If the recipient has used up all the enhanced 0% tax band can they still get £6000 tax free income from deposits?

Dazed_and_C0nfused

TBC15 said:

Dazed_and_C0nfused said:

TBC15 said:

EthicsGradient said:

Your wife will be able to get the total of the Personal Allowance, and the £1,000, and another £5,000 ( the "starting rate of 0% for savers" who have not reached the Personal Allowance with other income like wages, pension or income from owning a property). 

Note that she can also transfer £1,260 of her Personal Allowance to you, if you are a basic rate taxpayer - see Marriage Allowance: How it works - GOV.UK (www.gov.uk) (if you're in Scotland, see link for further details).

How does transfer of personal allowance affect the two parties with regard to the £1000 and £5000 rates if both parties are using the adjusted personal allowances with pension income?

The transferror has a lower Personal Allowance so could use up some of the savings starter rate band if non savings non dividend income exceeds that.

No impact on the recipient as their Personal Allowance is unchanged.

I’m a bit confused with transferor using the savings starter rate with non savings income.

If the recipient has used up all the enhanced 0% tax band can they still get £6000 tax free income from deposits?

Sloppy wording 😞 

I meant their non savings non dividend income could effectively use some (or all) of that rate band meaning less was available for interest.

For example say you had pension income of £14,000 and no other non savings non dividend income.  The £2,690 pension income taxed at 20% means the £5,000 savings starter rate band is reduced to £2,310 that can be taxed at 0%.  Plus the savings nil rate band of £1,000 taxed at 0%.

The recipients tax is calculated as normal with Personal Allowance of £12,570.  But they then get £252 knocked off the total liability (£1,260 x 20%).

If they are interested in "tax free" interest then they need to opt for ISA's.

TBC15

Dazed_and_C0nfused said:

TBC15 said:

Dazed_and_C0nfused said:

TBC15 said:

EthicsGradient said:

Your wife will be able to get the total of the Personal Allowance, and the £1,000, and another £5,000 ( the "starting rate of 0% for savers" who have not reached the Personal Allowance with other income like wages, pension or income from owning a property). 

Note that she can also transfer £1,260 of her Personal Allowance to you, if you are a basic rate taxpayer - see Marriage Allowance: How it works - GOV.UK (www.gov.uk) (if you're in Scotland, see link for further details).

How does transfer of personal allowance affect the two parties with regard to the £1000 and £5000 rates if both parties are using the adjusted personal allowances with pension income?

The transferror has a lower Personal Allowance so could use up some of the savings starter rate band if non savings non dividend income exceeds that.

No impact on the recipient as their Personal Allowance is unchanged.

I’m a bit confused with transferor using the savings starter rate with non savings income.

If the recipient has used up all the enhanced 0% tax band can they still get £6000 tax free income from deposits?

Sloppy wording 😞 

I meant their non savings non dividend income could effectively use some (or all) of that rate band meaning less was available for interest.

For example say you had pension income of £14,000 and no other non savings non dividend income.  The £2,690 pension income taxed at 20% means the £5,000 savings starter rate band is reduced to £2,310 that can be taxed at 0%.  Plus the savings nil rate band of £1,000 taxed at 0%.

The recipients tax is calculated as normal with Personal Allowance of £12,570.  But they then get £252 knocked off the total liability (£1,260 x 20%).

If they are interested in "tax free" interest then they need to opt for ISA's.

Thanks for the patience.

Once more for the hard of thinking. If the recipient has pension income of £13830 can they still earn £6000 interest before paying any tax?

Dazed_and_C0nfused

TBC15 said:

Dazed_and_C0nfused said:

TBC15 said:

Dazed_and_C0nfused said:

TBC15 said:

EthicsGradient said:

Your wife will be able to get the total of the Personal Allowance, and the £1,000, and another £5,000 ( the "starting rate of 0% for savers" who have not reached the Personal Allowance with other income like wages, pension or income from owning a property). 

Note that she can also transfer £1,260 of her Personal Allowance to you, if you are a basic rate taxpayer - see Marriage Allowance: How it works - GOV.UK (www.gov.uk) (if you're in Scotland, see link for further details).

How does transfer of personal allowance affect the two parties with regard to the £1000 and £5000 rates if both parties are using the adjusted personal allowances with pension income?

The transferror has a lower Personal Allowance so could use up some of the savings starter rate band if non savings non dividend income exceeds that.

No impact on the recipient as their Personal Allowance is unchanged.

I’m a bit confused with transferor using the savings starter rate with non savings income.

If the recipient has used up all the enhanced 0% tax band can they still get £6000 tax free income from deposits?

Sloppy wording 😞 

I meant their non savings non dividend income could effectively use some (or all) of that rate band meaning less was available for interest.

For example say you had pension income of £14,000 and no other non savings non dividend income.  The £2,690 pension income taxed at 20% means the £5,000 savings starter rate band is reduced to £2,310 that can be taxed at 0%.  Plus the savings nil rate band of £1,000 taxed at 0%.

The recipients tax is calculated as normal with Personal Allowance of £12,570.  But they then get £252 knocked off the total liability (£1,260 x 20%).

If they are interested in "tax free" interest then they need to opt for ISA's.

Thanks for the patience.

Once more for the hard of thinking. If the recipient has pension income of £13830 can they still earn £6000 interest before paying any tax?

No.  Their pension income will have used £1,260 of the basic rate band (£13,830 - £12,570 = £1,260) so they would only have £3,740 of the savings starter rate band to use.

Plus the £1,000 savings nil rate band (aka PSA).

So £4,740 in total where no tax would be payable.

What you need to remember is you cannot have a Personal Allowance greater than £12,570.

TBC15

Dazed_and_C0nfused said:

TBC15 said:

Dazed_and_C0nfused said:

TBC15 said:

Dazed_and_C0nfused said:

TBC15 said:

EthicsGradient said:

Your wife will be able to get the total of the Personal Allowance, and the £1,000, and another £5,000 ( the "starting rate of 0% for savers" who have not reached the Personal Allowance with other income like wages, pension or income from owning a property). 

Note that she can also transfer £1,260 of her Personal Allowance to you, if you are a basic rate taxpayer - see Marriage Allowance: How it works - GOV.UK (www.gov.uk) (if you're in Scotland, see link for further details).

How does transfer of personal allowance affect the two parties with regard to the £1000 and £5000 rates if both parties are using the adjusted personal allowances with pension income?

The transferror has a lower Personal Allowance so could use up some of the savings starter rate band if non savings non dividend income exceeds that.

No impact on the recipient as their Personal Allowance is unchanged.

I’m a bit confused with transferor using the savings starter rate with non savings income.

If the recipient has used up all the enhanced 0% tax band can they still get £6000 tax free income from deposits?

Sloppy wording 😞 

I meant their non savings non dividend income could effectively use some (or all) of that rate band meaning less was available for interest.

For example say you had pension income of £14,000 and no other non savings non dividend income.  The £2,690 pension income taxed at 20% means the £5,000 savings starter rate band is reduced to £2,310 that can be taxed at 0%.  Plus the savings nil rate band of £1,000 taxed at 0%.

The recipients tax is calculated as normal with Personal Allowance of £12,570.  But they then get £252 knocked off the total liability (£1,260 x 20%).

If they are interested in "tax free" interest then they need to opt for ISA's.

Thanks for the patience.

Once more for the hard of thinking. If the recipient has pension income of £13830 can they still earn £6000 interest before paying any tax?

No.  Their pension income will have used £1,260 of the basic rate band (£13,830 - £12,570 = £1,260) so they would only have £3,740 of the savings starter rate band to use.

Plus the £1,000 savings nil rate band (aka PSA).

So £4,740 in total where no tax would be payable.

What you need to remember is you cannot have a Personal Allowance greater than £12,570.

Just to flick another fly into the ointment would a £2880 pension contribution affect calculations for either party?