Low paid and interest

Grandadtiger

Does anyone remember the item re extra tax allowance on interest for low paid ?
Hmrc have reduced my tax code by amount of interest last year despite no tax due.

molerat

If you have spare allowance and receive interest then HMRC will allocate some of that interest to that spare allowance.  It will not cause you to pay any tax as long as your code remains above the income it is set against.  That is why it is important to ensure your tax account shows the correct estimated income for each income stream.

Dazed_and_C0nfused

Grandadtiger said:

Does anyone remember the item re extra tax allowance on interest for low paid ?
Hmrc have reduced my tax code by amount of interest last year despite no tax due.

Do you mean they have reduced your current tax code to include an estimate of the interest you might receive in this tax year (using last year's amount as the estimate).  And as a result of that you still aren't paying tax.

Or has it made you start to pay tax now?

You can only benefit from the savings starter rate band and savings nil rate band (aka Personal Savings Allowance) once your Personal Allowance has been used.

Grandadtiger

I think hmrc have reduced code by interest earned last year. This equates to expected income but I plan to take deferred pension so will exceed this lower code.

Dazed_and_C0nfused

Grandadtiger said:

I think hmrc have reduced code by interest earned last year. This equates to expected income but I plan to take deferred pension so will exceed this lower code.

Is this deferred pension a different source of income to the one the tax code relates to?

Grandadtiger

Deferred state pension lump.sum on old scheme

Dazed_and_C0nfused

Grandadtiger said:

Deferred state pension lump.sum on old scheme

You never get a tax code for that.

DWP will ask you to self certify your tax rate and deduct 0/20/40% tax accordingly.

Note it is crucial you remember to include the normal State Pension payments you will start to receive when working out the correct tax rate.

And if your taxable income is say £14,000 but you don't pay tax because of one or more of the 0% rate band ls then you are a basic rate payer for State Pension deferral lump sum purposes.