Savings Interest from previous year tipping this year into 40%

surreysaver

My tax code for this year (2024/25) has reduced from the usual 1257 to 755.  This is due to untaxed interest from 2023/24 of £1,255, being added to estimated untaxed interest this year of £3,816.

My taxable income from employment this year is estimated at £42,502.  I have already maximised my pension deductions to reduce my taxable pay as low as I can.

So, my total taxable income for the 2024/25 tax year is £47,573.  Minus my personal allowance of £7,559 is £40,014.  Take off the 20% band of £37,700 leaves £2,314 to pay at 40%.

So, my first question is have I understood the tax situation correctly?

And are my calculations correct?

If so, should taxable income from a previous year that should have been taxed at 20%, be charged this year at 40%?  And should I be expecting a refund in due course for the difference when HMRC eventually have all the data from this year?

Dazed_and_C0nfused

surreysaver said:

My tax code for this year (2024/25) has reduced from the usual 1257 to 755.  This is due to untaxed interest from 2023/24 of £1,255, being added to estimated untaxed interest this year of £3,816.

My taxable income from employment this year is estimated at £42,502.  I have already maximised my pension deductions to reduce my taxable pay as low as I can.

So, my total taxable income for the 2024/25 tax year is £47,573.  Minus my personal allowance of £7,559 is £40,014.  Take off the 20% band of £37,700 leaves £2,314 to pay at 40%.

So, my first question is have I understood the tax situation correctly?

And are my calculations correct?

If so, should taxable income from a previous year that should have been taxed at 20%, be charged this year at 40%?  And should I be expecting a refund in due course for the difference when HMRC eventually have all the data from this year?

You have completely misunderstood.

HMRC never tax you in one year on interest that was taxable in another year.

Maybe you could clarify exactly what the breakdown of your code is?

Also, why do you think your Personal Allowance is £7,559 🤔. Only spoken with adjusted net income well in excess of £100k could have that Personal Allowance.  Are you confusing Personal Allowance and (always provisional) tax code allowances???

[Deleted User]

surreysaver said:

My tax code for this year (2024/25) has reduced from the usual 1257 to 755.  This is due to untaxed interest from 2023/24 of £1,255, being added to estimated untaxed interest this year of £3,816.

My taxable income from employment this year is estimated at £42,502.  I have already maximised my pension deductions to reduce my taxable pay as low as I can.

So, my total taxable income for the 2024/25 tax year is £47,573.  Minus my personal allowance of £7,559 is £40,014.  Take off the 20% band of £37,700 leaves £2,314 to pay at 40%.

So, my first question is have I understood the tax situation correctly?

And are my calculations correct?

If so, should taxable income from a previous year that should have been taxed at 20%, be charged this year at 40%?  And should I be expecting a refund in due course for the difference when HMRC eventually have all the data from this year?

You are reducing your personal allowance by the interest figures of £1255 and £3816. 

Are you aware of the savings allowance of £1000 and 0% rate band ?

Kim_13

What is your interest in 24/25 likely to be? If it is lower than estimated, you will be due a refund of anything taxed at 40% when it should have been taxed at 20%.

If your total income for 24/25 sneaks into the basic rate band, £1,000 of interest is tax free, but only £500 if you go over. 

Was your total taxable interest in 23/24 £2,255? HMRC should not have taken £1,255 off otherwise, due to the first £1,000 being tax free as a basic rate payer.

[Deleted User]

Kim_13 said:

What is your interest in 24/25 likely to be? If it is lower than estimated, you will be due a refund of anything taxed at 40% when it should have been taxed at 20%.

If your total income for 24/25 sneaks into the basic rate band, £1,000 of interest is tax free, but only £500 if you go over. 

Was your total taxable interest in 23/24 £2,255? HMRC should not have taken £1,255 off otherwise, due to the first £1,000 being tax free as a basic rate payer.

From the op figures there does not seem to be any prospect of HR tax in 2024:25

Bookworm105

surreysaver said:

My tax code for this year (2024/25) has reduced from the usual 1257 to 755.  This is due to untaxed interest from 2023/24 of £1,255, being added to estimated untaxed interest this year of £3,816.

My taxable income from employment this year is estimated at £42,502.  I have already maximised my pension deductions to reduce my taxable pay as low as I can.

So, my total taxable income for the 2024/25 tax year is £47,573.

then you remain a basic rate taxpayer in 24/25 and yes, you have misunderstood

your taxable income 47,573 - PA 12,570 = 35,003
you are still at least £2,000 inside the basic rate band 
You have confused the fact that, unless income is more than 100k, everyone still gets the full PA

the tax code is merely a method of collecting tax owed via PAYE. It is not a reduction to your personal allowance.

sheramber

The taxable interest figure for 24/25 shown in your code is an estimated figure based on your previous year's figure.

It is based on the assumption that you will receive the same amount in 24/25 so is an attempt for the correct tax to be deducted.

Once the actual figure for 24/25 is known any adjustment up or down will be made .and any underpaid/overpaid tax advised.

surreysaver

Bookworm105 said:

surreysaver said:

My tax code for this year (2024/25) has reduced from the usual 1257 to 755.  This is due to untaxed interest from 2023/24 of £1,255, being added to estimated untaxed interest this year of £3,816.

My taxable income from employment this year is estimated at £42,502.  I have already maximised my pension deductions to reduce my taxable pay as low as I can.

So, my total taxable income for the 2024/25 tax year is £47,573.

then you remain a basic rate taxpayer in 24/25 and yes, you have misunderstood

your taxable income 47,573 - PA 12,570 = 35,003
you are still at least £2,000 inside the basic rate band 
You have confused the fact that, unless income is more than 100k, everyone still gets the full PA

the tax code is merely a method of collecting tax owed via PAYE. It is not a reduction to your personal allowance.

I think that's what's confusing me. I'm conflating a change in my tax code with a change in my personal allowance. Which obviously doesn't happen.

HMRC aren't adding previous year's untaxed income to this year's income?

So this year's income should stay within the 20% band?  Is that correct?