Tax on one year bond savings

Iwouldratherwalk

Hi All, 

I'm back with another question.  

My mum earned £6800 interest on her savings.  This matured in December 24.  

She is a basic tax rate payer.  She receives a small work place pension of £570 per month and her state pension of £823 per month.  Other income would be a yearly interest earned from savings- approx between £4000, £5000 and £6,800, consecutively over the last 3 years.  

She has had a letter from her work place pension saying they are reducing her pension to £343 per month to collect tax owed, a reduction of £227 per month. 

I have yet to read this letter as haven't seen her yet, but based on what my mum is saying, surely this would mean she will be paying £2724 on interest earned of £6800?  

I would appreciate any advice or confirmation that this sounds ok.  I will see the pension letter tomorrow for myself.  

Thank you in advance!

Dazed_and_C0nfused

Iwouldratherwalk said:

Hi All, 

I'm back with another question.  

My mum earned £6800 interest on her savings.  This matured in December 24.  

She is a basic tax rate payer.  She receives a small work place pension of £570 per month and her state pension of £823 per month.  Other income would be a yearly interest earned from savings- approx between £4000, £5000 and £6,800, consecutively over the last 3 years.  

She has had a letter from her work place pension saying they are reducing her pension to £343 per month to collect tax owed, a reduction of £227 per month. 

I have yet to read this letter as haven't seen her yet, but based on what my mum is saying, surely this would mean she will be paying £2724 on interest earned of £6800?  

I would appreciate any advice or confirmation that this sounds ok.  I will see the pension letter tomorrow for myself.  

Thank you in advance!

There are only two months left in the current tax year so where are you getting your £2,724 figure from 🤔

She will have a new tax code to be used from 6 April 2025.

I would suggest you obtain the actual facts before jumping to any conclusions. 

And don't forget State Pension is never paid monthly.  Could the real State Pension entitlement be £823 every 4 weeks?

Caz3121

in addition to the savings income there will also be tax due on some of the pension income as her two pensions total over the personal allowance...was there previously tax deducted from the workplace pension?

Keep_pedalling

Based on your numbers your mother has annual pension income of £17,539 so all bar £39 of her starting savings rate will have been used up leaving hear with only £1,039 of interest that she won’t be paying tax on so 20% of the remaining, so she owes HMRC around £1,150 income tax from this year alone.

Iwouldratherwalk

Thank you for the replies!  Yes, I was trying to work this out without the full figures.  My mother's actual work place pension was in fact £686 (she was giving me the figure after the initial tax had been deducted).  I am going to look at her letters from HMRC and her pension letter properly later. She wasn't deducted anything extra for the last two years for the interest she gained so I think the change in deductions now might be for three years of interest (if this is possible).  
I was getting the figure of £2724 by multiplying the additional deduction of £227 by 12.  So, maybe I should have multiplied it by less, to bring her to the new tax year? 
Sorry, I am learning as I go about tax on interest and pensions etc.  I have never earned interest as have no savings, and I am PAYE.  
I'll come more prepared next time  :-/ 

Dazed_and_C0nfused

Iwouldratherwalk said:

Thank you for the replies!  Yes, I was trying to work this out without the full figures.  My mother's actual work place pension was in fact £686 (she was giving me the figure after the initial tax had been deducted).  I am going to look at her letters from HMRC and her pension letter properly later. She wasn't deducted anything extra for the last two years for the interest she gained so I think the change in deductions now might be for three years of interest (if this is possible).  
I was getting the figure of £2724 by multiplying the additional deduction of £227 by 12.  So, maybe I should have multiplied it by less, to bring her to the new tax year? 
Sorry, I am learning as I go about tax on interest and pensions etc.  I have never earned interest as have no savings, and I am PAYE.  
I'll come more prepared next time  :-/ 

No, she would not have interest for three tax years taken into account in her tax code.

But she might have (estimated) interest for one tax year along with tax owed for previous tax years.  And the main reason for owing tax could be interest. 

But a tax code will have separate entries for interest and tax owed.

Whatever her new tax code for 2024-25 is will only be relevant to 5 April 2025.  A new code will be calculated for the next tax year.  The code for the next year is highly likely to be different.