Savings allowances & conflicting information

Wellimsailing

Hello - I have read so much about this online and in this forum, but after several hours on the phone to HMRC and down a rabbit hole, I am even more bewildered.

Due to an inheritance, the last tax year took me over £10k in savings interest. HMRC (several) said that interest is taxed over £1k regardless of how little had been earned through employment, going through figures as examples. This goes against what I have read here and in other articles. 

So, if I earned the below in '23-'24 and my tax code was 1156L (I don't know why), I owe tax on £10k?

PAYE income: £3000 - No tax paid as under PAYE earnings allowance.

Savings: £11000 - HMRC line say interest gets taxed after £1000 (even if you haven't been in any employment at all).

My PA online says £0 tax payable for that year; HMRC say I have to apply for self assessment for the same year as over £10k.

They also cannot tell me what date I enter in to untaxed earnings on that SA1 form - it's savings, so technically a long time (whenever they stopped automatically taking it), but I'm only completing it as it went over on that year, so what are they asking? (I did ask that question to the self-assessment team but they said they couldn't tell me).

I haven't looked into this before as I assumed I wasn't liable for tax in the previous couple of years due to low earnings, low interest rate & the fact I thought the allowance was much higher to cover savings.

Can anyone help me understand the difference between what I read and what HMRC have told me (and what dates savers should put on the SA1)?

I wish I'd never called them.

Thank you

Dazed_and_C0nfused

HMRC front line staff seem to be sadly lacking in knowledge in this area.

If your total non savings non dividend income (taxable earnings, self employment profits, rental income profit etc) in 2023-24 was exactly £3,000 and you haven't applied for Marriage Allowance then you can earn £15,570 in interest before tax is payable on it.

The first £9,570 is covered by your unused Personal Allowance and the remaining £6,000 is all taxed at 0%.

HMRC want you to register for Self Assessment if (taxable) interest in any year is £10k or more but the tax legislation doesn't state that I don't think, you only have to register if you had some tax to pay on the interest.

If you want to register the date I would use would be 6 April of the tax year you first  received £10k in.  Do not put an earlier date as then HMRC would expect you to complete tax returns for the earlier year(s).

soulsaver

@Dazed_and_C0nfused

I suspect many others feel the same, but appreciation often goes unsaid.

So,I would just like to say how much I appreciate your always clear and concise contributions on the complicated subject of taxation. Well informed and articulate, they always appear patient and tolerant. 

Brill stuff!

Wellimsailing

Thank you, Dazed_and_C0nfused. I was concerned that they all had the same response. I did query it against what I understood the breakdown to be, similar to what you have said, but I got a big, shouty 'NO!' from them, so your detailed reply is very helpful, thank you.

I feel a little calmer now.

(My figures were similar, just rounded as an example).

Dazed_and_C0nfused

Wellimsailing said:

Thank you, Dazed_and_C0nfused. I was concerned that they all had the same response. I did query it against what I understood the breakdown to be, similar to what you have said, but I got a big, shouty 'NO!' from them, so your detailed reply is very helpful, thank you.

I feel a little calmer now.

(My figures were similar, just rounded as an example).

I think the one element that they seem to struggle with is the £5,000 savings starter rate band.

Despite this being in gov.uk guidance and no doubt their own manuals!

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

Dazed_and_C0nfused

soulsaver said:

@Dazed_and_C0nfused

I suspect many others feel the same, but appreciation often goes unsaid.

So,I would just like to say how much I appreciate your always clear and concise contributions on the complicated subject of taxation. Well informed and articulate, they always appear patient and tolerant. 

Brill stuff!

Thanks 😃.

Shame HMRC can't quite seem to manage the same these days!

Wellimsailing

Dazed_and_C0nfused said:

HMRC front line staff seem to be sadly lacking in knowledge in this area.

If your total non savings non dividend income (taxable earnings, self employment profits, rental income profit etc) in 2023-24 was exactly £3,000 and you haven't applied for Marriage Allowance then you can earn £15,570 in interest before tax is payable on it.

The first £9,570 is covered by your unused Personal Allowance and the remaining £6,000 is all taxed at 0%.

HMRC want you to register for Self Assessment if (taxable) interest in any year is £10k or more but the tax legislation doesn't state that I don't think, you only have to register if you had some tax to pay on the interest.

If you want to register the date I would use would be 6 April of the tax year you first  received £10k in.  Do not put an earlier date as then HMRC would expect you to complete tax returns for the earlier year(s).

One last query on your comment  - for the calculation, does it not matter with those figures that my final tax code for that year is listed as 1156? Or is that purely PAYE related? Thank you!

Dazed_and_C0nfused

Wellimsailing said:

Dazed_and_C0nfused said:

HMRC front line staff seem to be sadly lacking in knowledge in this area.

If your total non savings non dividend income (taxable earnings, self employment profits, rental income profit etc) in 2023-24 was exactly £3,000 and you haven't applied for Marriage Allowance then you can earn £15,570 in interest before tax is payable on it.

The first £9,570 is covered by your unused Personal Allowance and the remaining £6,000 is all taxed at 0%.

HMRC want you to register for Self Assessment if (taxable) interest in any year is £10k or more but the tax legislation doesn't state that I don't think, you only have to register if you had some tax to pay on the interest.

If you want to register the date I would use would be 6 April of the tax year you first  received £10k in.  Do not put an earlier date as then HMRC would expect you to complete tax returns for the earlier year(s).

One last query on your comment  - for the calculation, does it not matter with those figures that my final tax code for that year is listed as 1156? Or is that purely PAYE related? Thank you!

Your tax code is just provisional, some elements might be used when your liability is reviewed after the end of the tax year but that's all.

The fact it was specifically 1156L isnt relevant.

It might have been made up like this,

Personal Allowance 12570
Less interest 1005*
Tax code allowances 11565
Tax code 1156L

*the interest being estimated from the previous tax year and included in your tax code as you had spare Personal Allowance to use

Wellimsailing

Thanks again. 

I'm in danger of understanding aspects of tax after this experience! HMRC helpline really confused me. For hours.

Dazed_and_C0nfused

Just so you know it's possible that you could get a new tax code for this year (2024:25) once HMRC have received and sorted all the interest details for 2023-24.

If your estimated earnings were going to be £3,000 again this year and even with the larger amount of interest (2023-24 figure will usually be used as an estimate for 2024-25) you wouldn't have tax to pay on the interest your new tax code might look like this,

Personal Allowance 12570

Less interest 9570

Tax code allowances 3000

Tax code 300L

With earnings of £3,000 you still wouldn't pay any tax on them with code 300L.

Bigwheels1111

I went over 10k interest this year, and on low income like you.

I have not bothered with tax codes etc.

I just filed a self assessmont return at the begining of April.

It said I owe £0.00.

All is good.