Personal tax allowance if unemployed - other factors that could affect it?

What_time_is_it

I took redundancy just before Christmas and I am taking some time off work for a couple of years. I have quite a bit in savings so I need to work out what my Personal Allowance will be for the year 2005/26. 

I understand that if I do not work my allowance will be £18,570, made up of:
£12,570 personal allowance
£5,000 starting rate for savings
£1,000 personal savings allowance

That should mean that I can earn up to £18,570 in (received and available to spend) interest over the forthcoming tax year, right?

Then there are 2 things that I am unsure about which could potentially reduce this:

1. Marriage Allowance. If I transfer £1,260 of my allowance to my partner does that mean that my overall “tax free amount” also reduces by £1,260? 
In this example that would potentially reduce the value form £18,570 to £17,310.

2. Pension contributions to a SIPP. I understand that I can contribute up to £2,880 into a SIPP if I am unemployed during a tax year. And that this would be “topped up” to £3,600 with tax relief from HMRC of £720. Does this have an effect on my total tax free allowance for the year?

So, if I do both of the things above, how much will my total tax free allowance for savings interest income (or any other form of income I guess) be in 2025/26?

Any advice or experience would be warmly received as I find this quite hard to work out! Thanks.

Dazed_and_C0nfused

Your Personal Allowance will be either £11,310 (of you apply for Marriage Allowance) or £12,570.  It cannot be more than £12,570.

But if you have no non savings non dividend income (or you have some but less than whatever your Personal Allowance is) then you will have the savings starter rate band and savings nil rate band available.

So a total of £6,000 in interest that would be taxed at 0%.

In your situation the SIPP would have no relevance to your personal tax situation.  But you could get the £720 in basic rate tax relief even if you don't pay any income tax.

What_time_is_it

Thansk @Dazed_and_C0nfused.

So, to summarise what your are saying, any contribution I make to a SIPP has no effect at all on my personal allowance, the street rate for savings, or my savings nil rate band. But if I take up the marriage allowance transfer it would reduce my personal allowance by £1,260. Is that correct?

And, providing I have no income apart from savings and dividends (and bank switching bonuses, and payment from sales at auctions, and cash sales of personal items - I can think of any other sources of income I might have!), then I would have my personal allowance of £12,570 or £11,310 PLUS £6,000? Is that right? So I could, in theory, earn £18,570 (or £17,310) in savings interest and dividends before any tax in incurred?

Dazed_and_C0nfused

What_time_is_it said:

Thansk @Dazed_and_C0nfused.

So, to summarise what your are saying, any contribution I make to a SIPP has no effect at all on my personal allowance, the street rate for savings, or my savings nil rate band. But if I take up the marriage allowance transfer it would reduce my personal allowance by £1,260. Is that correct?

And, providing I have no income apart from savings and dividends (and bank switching bonuses, and payment from sales at auctions, and cash sales of personal items - I can think of any other sources of income I might have!), then I would have my personal allowance of £12,570 or £11,310 PLUS £6,000? Is that right? So I could, in theory, earn £18,570 (or £17,310) in savings interest and dividends before any tax in incurred?

On the income levels you're referring to no, the pension contributions will have no impact.  They could do for someone with a very high income.

Yes applying for Marriage Allowance drops your Personal Allowance by £1,260.

You are introducing new elements into the mix now though.  I don't know what relevance bank switching bonuses have, I have never known them be taxable income (but maybe yours are?).

Are you running a business buying and selling items via auctions?  If so then your business profits could well impact how much interest you can earn before paying tax.  That puts a whole new slant on things.

Finally I have no idea what relevance the sale of personal items has from a tax perspective 🤔.

What_time_is_it

Thanks again.
The extra info is literally me trying to think of all other lines of income that I will get!

All I can think of is bank switching bonuses (and monthly cashback and reward and that kind of thing), and selling some of my stuff - not as a business, but just selling a few of my things either at an auction or directly to a buyer e,g. Furniture, car, antiques.

I don’t know if these things affect my tax at all! That’s why I bring them up. Trying to cover all possibilities!

sheramber

What_time_is_it said:

Thanks again.
The extra info is literally me trying to think of all other lines of income that I will get!

All I can think of is bank switching bonuses (and monthly cashback and reward and that kind of thing), and selling some of my stuff - not as a business, but just selling a few of my things either at an auction or directly to a buyer e,g. Furniture, car, antiques.

I don’t know if these things affect my tax at all! That’s why I bring them up. Trying to cover all possibilities!

Selling certain items including antiques could result in CGT being due.

https://www.gov.uk/capital-gains-tax-personal-possessions

Sarahspangles

What_time_is_it said:

Thanks again.
The extra info is literally me trying to think of all other lines of income that I will get!

All I can think of is bank switching bonuses (and monthly cashback and reward and that kind of thing), and selling some of my stuff - not as a business, but just selling a few of my things either at an auction or directly to a buyer e,g. Furniture, car, antiques.

I don’t know if these things affect my tax at all! That’s why I bring them up. Trying to cover all possibilities!

If you bank with Nationwide, Fairer Shares counts as interest.

I will be doing the same thing for a couple of years before pensions kick in. I’ve looked at all of those other sorts of income on HMRC and LITRG and nothing I currently do counts as trading/income.  But you probably need to check for yourself. I will have spare starter savings band so we have moved some of OH’s savings into joint savings account to reduce his tax bill.

What_time_is_it

Thanks @sheramber
Any antiques are all under £6k, and they were inherited and declared when we completed the inheritance tax forms.

What_time_is_it

Thanks @Sarahspangles
it sounds like we are in similar positions! My other half has moved some of her savings into my name for next year to maximise the tax free amount for interest.

i don’t think there will be any trading income so it looks like my total tax free allowance for next year will be the max £18,570 less the marriage allowance, so £17,310.

Nationwide Fairer Share! Interesting. I might get that this year. How do I tell if any bank bonuses, cashback, etc counts as income for tax purposes? And what about cashback sites like TopCashback? 

Sarahspangles

What_time_is_it said:

Thanks @Sarahspangles
it sounds like we are in similar positions! My other half has moved some of her savings into my name for next year to maximise the tax free amount for interest.

i don’t think there will be any trading income so it looks like my total tax free allowance for next year will be the max £18,570 less the marriage allowance, so £17,310.

Nationwide Fairer Share! Interesting. I might get that this year. How do I tell if any bank bonuses, cashback, etc counts as income for tax purposes? And what about cashback sites like TopCashback? 

I don’t know how to check - I was surprised to see that the Fairer Share cash was treated as interest!

butterflymum

Remember, if you earn more than £10,000 in savings and/or investments interest in a year, HMRC apparently say you must register for Self Assessment.