Change in tax code

dollypeeps

eskbanker said:

dollypeeps said:

eskbanker said:

dollypeeps said:

eskbanker said:

dollypeeps said:

HMRC has told me that my untaxed interest on savings and investments is £1578. I’ve done a quick calculation and I’ve earned that more or less but I was under the impression that you have £1000 PSA and that I would only be liable for tax on the amount over £1000. In this case £578.

The full £1578 is taxable income but the first £1000 is taxed at 0% if you're fully within the basic rate, including the interest income.

Thank you for your reply.
Yes I am. I only receive a very small pension payment £360 per month/£4320 per year.
i understand that the full amount would be taxable as its income but why have the decreased my tax code by the full amount-£1578.
If I was to start paying tax then if looks as if I have £1000 less on my personal allowance.
I am sorry if I’m not looking at this correctly and I appreciate you taking the time to reply.

It's just the way the HMRC systems and processes are set up, but it doesn't matter if you're not actually paying any tax.  Your tax code is only used to drive PAYE deductions, so if there aren't any then it doesn't matter, but if your taxable income was to increase to the point where you actually would be due to pay any then your coding would be calibrated accordingly.

Thank you so much for your reply. It makes sense now, especially the part where the coding would be calibrated accordingly.
Dd is nearing the PSA allowance and she’s a basic rate tax payer. She was under the impression that she would only pay on the balance over £1k.
Again thank you for taking the time to post

Let's say, for the sake of argument, that your pension income increased to £17,570 at some point in the future when it'll include the state pension - if at that point you were earning £1500 in savings interest then the tax on that interest would be £1000 at 0% and £500 at 20%, so £100.

Thank you once again. Your explanation is great.Everything is easy once you know isn’t it!?!

I shall bookmark you as my go to for all tax type queries! lol