Starting rate for savings and income for tax credits purposes

leitmotif

If I am earning below or the same as my personal allowance, I have the full starting rate for savings (£5,000 of savings interest is untaxed) plus the full personal savings allowance (another £1,000 of savings interest is untaxed). As income for tax credits purposes does not include untaxable benefits (e.g. PIP) but does include taxable benefits (e.g. Carer's Allowance) and does not include untaxable savings interest (e.g. ISAs) but does include taxable savings interest, does the first £5,000 + £1,000 of savings interest have to be declared as income despite being subject to tax? Or to put it another way, is a distinction made between taxable and taxed (i.e. the savings interest could have been taxed had my other income been higher)?

Dazed_and_C0nfused

leitmotif said:

If I am earning below or the same as my personal allowance, I have the full starting rate for savings (£5,000 of savings interest is untaxed) plus the full personal savings allowance (another £1,000 of savings interest is untaxed). As income for tax credits purposes does not include untaxable benefits (e.g. PIP) but does include taxable benefits (e.g. Carer's Allowance) and does not include untaxable savings interest (e.g. ISAs) but does include taxable savings interest, does the first £5,000 + £1,000 of savings interest have to be declared as income despite being subject to tax? Or to put it another way, is a distinction made between taxable and taxed (i.e. the savings interest could have been taxed had my other income been higher)?

You've misunderstood, you can only utilise the savings starter rate band and savings nil rate band (aka Personal Savings Allowance) with taxable income.

And that income is being "taxed", just at a 0% tax rate.

I cannot see why that (taxable) income wouldn't be relevant for tax credit purposes.  Subject to the £300 disregard of course (assuming that  still exists).

leitmotif

Dazed_and_C0nfused said:

You've misunderstood, you can only utilise the savings starter rate band and savings nil rate band (aka Personal Savings Allowance) with taxable income.

Thanks for your response. Could you clarify what you mean by 'utilise [...] with taxable income'?

Dazed_and_C0nfused

leitmotif said:

Dazed_and_C0nfused said:

You've misunderstood, you can only utilise the savings starter rate band and savings nil rate band (aka Personal Savings Allowance) with taxable income.

Thanks for your response. Could you clarify what you mean by 'utilise [...] with taxable income'?

You can't utilise it with non taxable income such as interest from Cash ISA's.

Your post was referencing income which was a mix of taxable and non taxable income and I was just trying to make it clear that for income tax purposes you only need to consider taxable income.

There is a strict hierarchy with income tax and you can only use the savings starter rate band once all of your Personal Allowance has been used.

And you can only then use the savings nil rate band (aka PSA) once the savings starter rate band has been used (where some or all of it is available).

leitmotif

Dazed_and_C0nfused said:

You can't utilise it with non taxable income such as interest from Cash ISA's.

Your post was referencing income which was a mix of taxable and non taxable income

Ah, I see. Thanks for the clarification. Actually, my references to PIP versus Carer's Allowance and ISA interest versus normal savings account interest were intended purely to raise a distinction between taxable and untaxable to then raise a distinction between taxed and untaxed. Purely hypothetically, if my limited company pays me exactly my personal allowance in a given tax year (and I take no dividend) and I also earn exactly £6,000 in normal savings interest (non-ISA interest) and no other earnings, I would pay no income tax. But would the Tax Credits team consider my income to be equal to my personal allowance or my personal allowance + £6,000? In other words, in that specific situation, is that £6,000 in savings interest taxable-but-untaxed or untaxable-and-untaxed? My default assumption is that it's income regardless of whether it's taxed or not, because in theory it could be taxed under other circumstances (if I had paid myself more, or paid myself a dividend, or had other income), i.e. it's taxable-but-untaxed.

Dazed_and_C0nfused

leitmotif said:

Dazed_and_C0nfused said:

You can't utilise it with non taxable income such as interest from Cash ISA's.

Your post was referencing income which was a mix of taxable and non taxable income

Ah, I see. Thanks for the clarification. Actually, my references to PIP versus Carer's Allowance and ISA interest versus normal savings account interest were intended purely to raise a distinction between taxable and untaxable to then raise a distinction between taxed and untaxed. Purely hypothetically, if my limited company pays me exactly my personal allowance in a given tax year (and I take no dividend) and I also earn exactly £6,000 in normal savings interest (non-ISA interest) and no other earnings, I would pay no income tax. But would the Tax Credits team consider my income to be equal to my personal allowance or my personal allowance + £6,000? In other words, in that specific situation, is that £6,000 in savings interest taxable-but-untaxed or untaxable-and-untaxed? My default assumption is that it's income regardless of whether it's taxed or not, because in theory it could be taxed under other circumstances (if I had paid myself more, or paid myself a dividend, or had other income), i.e. it's taxable-but-untaxed.

I would say that because your Personal Allowance was fully utilised by your earnings it's both taxable and taxed.

From what you have posted wouldn't tax credits treat your income as £18,270?

leitmotif

Dazed_and_C0nfused said:

I would say that because your Personal Allowance was fully utilised by your earnings it's both taxable and taxed.

From what you have posted wouldn't tax credits treat your income as £18,270?

According to the following link, it doesn't get taxed: https://www.gov.uk/apply-tax-free-interest-on-savings.

£18,270 assuming a £300 disregard, yes.

Dazed_and_C0nfused

leitmotif said:

Dazed_and_C0nfused said:

I would say that because your Personal Allowance was fully utilised by your earnings it's both taxable and taxed.

From what you have posted wouldn't tax credits treat your income as £18,270?

According to the following link, it doesn't get taxed: https://www.gov.uk/apply-tax-free-interest-on-savings.

£18,270 assuming a £300 disregard, yes.

gov.uk isn't always the best source of information.  It definitely does get taxed.

This is a better explanation.

https://www.litrg.org.uk/savings-property/tax-savings-and-investments/tax-savings-income