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Tax on savings interest

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Surely you are right and they are wrong...Your total income is £18,400 which includes the interest.My understanding is that if your total income is no more than £18,570 then there is no tax due on the savings element.
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ccodip said:I would be grateful for a second opinion please. Earnings & pension total £16,100. Savings interest of £2300. I think I should be allowed a ‘starting rate for savings’ balance of £1,470 tax free (£17,570 - £16100) plus a ‘personal savings allowance’ of £1,000, resulting in all savings interest being tax free. HMRC say as my total income (they include savings interest in this figure) is £18400, & as it therefore exceeds £17570, I cannot get any of the £5000 ‘’starting rate for savings’. I think they are wrong?.
"If your other income is less than £17,570Your starting rate for savings is a maximum of £5,000. Every £1 of other income above your Personal Allowance reduces your starting rate for savings by £1."
"ExampleYou earn £16,000 of wages and get £200 interest on your savings.
Your Personal Allowance is £12,570. It’s used up by the first £12,570 of your wages.
The remaining £3,430 of your wages (£16,000 minus £12,570) reduces your starting rate for savings by £3,430.
Your remaining starting rate for savings is £1,570 (£5,000 minus £3,430)."
"Income Tax band Personal Savings Allowance
Basic rate £1,000"
So the £12,570 is used by your earnings and pension. The remaining £3,530 of earnings/pension reduces the band for starting (zero) rate savings to £5,000-£3,530=£1,470. You also have the zero rate PSA of £1,000, so you can earn up to £2,470 in savings interest before paying tax on it.
HMRC is quite clear on that page that it is other income, ie salary, pension, rental income that counts (although they do not mention it on that page, dividend income is not counted in the "other income" either).
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As I understand it,£18,570 is the base line.Made up of.£12,570, Tax free Pension, earnings or interest.£ 5,000, Starter savings rate, if not income. If income taxed at 20%.£ 1,000 PSA.So for you £16,100 would use £12,570 tax free allowance, Then use £3,530 of your starter savings rate as income and leave you £1,470 starter savings rate.Then £1,000 PSA.So up to £2,470 of interest tax free.As you have £2,300 of interest its all tax free, with £170 to play with.There are 2 ways forward as I see it. Due to HMRC being confused, ( what a surprise ).One, let them deal with it and if your not happy, contact them to sort it out.Two, files a self assessment return. You do not need to as your interest is under 10k.You should owe £706.00 tax on your earnings of £3530.00.0
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