Tax code change due to savings income - pay off now or just leave it?

IceCreamCone10

My tax code change is the one I expected based on my untaxed savings income from 2023-4 which they are now using for 2024-5. A lower PA but with an X at the end. My 2023-4 tax liability has not been calculated however.

My 2024-5 untaxed savings will be higher and take me into the 40% band. 2025-6 will probably be lower, and due to pension contributions, I would be in the 20% band.

My thinking was that as it will be a tax under payment for the last tax year and the current one, I would just leave the PAYE cycle to settle up at the end of each tax year, and leave the building societies to report the savings income as usual without my intervening via my PTA. The only exception would be if the savings income was reported wrongly, or if it was over estimated (which I expect will happen for 2025-6) based on the previous year and I wanted, say, to avoid a tax refund.

If the 2023-4 tax on savings income is due in 2025-6, would I have the option to pay it off in one go (it wouldn’t be another tax code change?)?

I am reading of people wanting to settle up without delay so presumably it is down to personal preferences e.g. they don’t want their tax codes to keep changing nor wait a year or more for a tax refund.

Dazed_and_C0nfused

IceCreamCone10 said:

My tax code change is the one I expected based on my untaxed savings income from 2023-4 which they are now using for 2024-5. A lower PA but with an X at the end. My 2023-4 tax liability has not been calculated however.

My 2024-5 untaxed savings will be higher and take me into the 40% band. 2025-6 will probably be lower, and due to pension contributions, I would be in the 20% band.

My thinking was that as it will be a tax under payment for the last tax year and the current one, I would just leave the PAYE cycle to settle up at the end of each tax year, and leave the building societies to report the savings income as usual without my intervening via my PTA. The only exception would be if the savings income was reported wrongly, or if it was over estimated (which I expect will happen for 2025-6) based on the previous year and I wanted, say, to avoid a tax refund.

If the 2023-4 tax on savings income is due in 2025-6, would I have the option to pay it off in one go (it wouldn’t be another tax code change?)?

I am reading of people wanting to settle up without delay so presumably it is down to personal preferences e.g. they don’t want their tax codes to keep changing nor wait a year or more for a tax refund.

Yes. It might be a tax code change, but one that you could change.

It is a little unusual that so many people are reporting that updated 2024-25 tax codes are happening before 2023-24 is finalised.

But when 2023-24 is eventually finalised any tax owed will normally be included in the tax code of the next tax year.  For example if 2023-24 was sorted today it would be the 2025-26 tax code that includes the tax owed at 5 April 2024.

So you would have a few weeks to pay that direct and have the tax owed to 5 April 2024 removed from the 2025-26 tax code.

maman

Sorry to hijack your thread but is anyone able to advise on my situation?

I paid the tax for my untaxed savings in one go a few weeks ago. I know I could have spread it out but I wanted it out of the way. 

Today I have had notification of my new tax code for the coming year which assumes I will have a similar income from savings going forward. 

As the savings were accrued largely to pay for anticipated building work on my home, much of the money has been spent already so it's unlikely that I'll have a similar income from savings this year. 

Is there anything I can/should do now or must I just pay the tax and expect a refund in the future? 🤔

wiseonesomeofthetime

That's weird, maman, as my tax code reverted back to 1257L once I settled my untaxed interest bill 🤷‍♂️

Dazed_and_C0nfused

maman said:

Sorry to hijack your thread but is anyone able to advise on my situation?

I paid the tax for my untaxed savings in one go a few weeks ago. I know I could have spread it out but I wanted it out of the way. 

Today I have had notification of my new tax code for the coming year which assumes I will have a similar income from savings going forward. 

As the savings were accrued largely to pay for anticipated building work on my home, much of the money has been spent already so it's unlikely that I'll have a similar income from savings this year. 

Is there anything I can/should do now or must I just pay the tax and expect a refund in the future? 🤔

It really depends on how important this is to you.

If you know the estimate being used for the coming year (2025-26) is likely to be excessive you are perfectly entitled to get in touch with HMRC and ask them to use your estimate.

They tend to want a figure (which could be £0) for each bank account they have details for, you can't for example just say the current £X total will only be £Y in 2025-26.

IceCreamCone10

Many thanks D&C. Yes in that case will wait for 23-24 to be finalised and pay it off direct before 25-26 starts (hopefully). Though I hear you can trigger the finalisation by phoning up. (PTA does say no need to contact them on the yet to be calculated 23-24 liability)

Dazed_and_C0nfused

IceCreamCone10 said:

Many thanks D&C. Yes in that case will wait for 23-24 to be finalised and pay it off direct before 25-26 starts (hopefully). Though I hear you can trigger the finalisation by phoning up. (PTA does say no need to contact them on the yet to be calculated 23-24 liability)

It is a little odd this year, usually the previous year would be checked and any refund or underpayment letters issued and then the current tax year codes updated (where necessary).

But it seems to be happening in reverse for some people this year.

Albermarle

Dazed_and_C0nfused said:

IceCreamCone10 said:

Many thanks D&C. Yes in that case will wait for 23-24 to be finalised and pay it off direct before 25-26 starts (hopefully). Though I hear you can trigger the finalisation by phoning up. (PTA does say no need to contact them on the yet to be calculated 23-24 liability)

It is a little odd this year, usually the previous year would be checked and any refund or underpayment letters issued and then the current tax year codes updated (where necessary).

But it seems to be happening in reverse for some people this year.

Maybe it is because the 23/24 finalisation seems to be running very late for some people?
I had mine in October as usual but a family member only just received theirs.

maman

I think I must have got caught up in the speed (or lack of) that the post comes out of various parts of HMRC. I paid the tax on my savings interest a few weeks ago but still got a new tax code. 

The decision now is whether I have the energy to try and speak to anyone at the tax office. 🤔

Dazed_and_C0nfused

maman said:

I think I must have got caught up in the speed (or lack of) that the post comes out of various parts of HMRC. I paid the tax on my savings interest a few weeks ago but still got a new tax code. 

The decision now is whether I have the energy to try and speak to anyone at the tax office. 🤔

Aren't those two unrelated things 🤔

The finalised position for 2023-24 wouldn't usually change anything for 2024-25.

A new tax code for 2024-25 is usually just trying to get the current tax year as upto date as possible.

The tax owed for 2023-24 would normally be included in your tax code for 2025-26.

The normal rule HMRC apply is that the interest from the prior year (2023-24) will be what is used as an estimate for the current tax year (2024-25).  Tax owed from 2023-24 usually doesn't get included in the 2024-25 tax code. 

There are exceptions to this but you not all that common.

maman

Sorry @Dazed_and_C0nfused, you're right that HMRC have made the estimate that I will get similar interest in the coming year and have adjusted my tax code accordingly . However as I no longer have this level of savings (due to spending on my home) then I know it won't be the case.