Is this Tax demand Correct

Mrnkar_2

Hi, Sorry not even sure if this is the correct board to post this or not. 
To cut a long story short I will send attachments but basically my understanding is that if your income is below £17,570 then you are allowed to have an Allowance of £5000 interest on savings before you have to pay tax on it? My husband's 23/24 income was £15,878 but they have added £3,578 untaxed interest under income and now says he owes tax. 
He had already paid tax on some of his income and in fact they actually sent him a refund so not sure why they now says he owes it. 
Any help much appreciated please save thank you.

eskbanker

Mrnkar_2 said:

To cut a long story short I will send attachments but basically my understanding is that if your income is below £17,570 then you are allowed to have an Allowance of £5000 interest on savings before you have to pay tax on it?

His taxable income, including the savings, was £19,455.92 though, so the various allowances don't take care of all the savings income and some tax remains payable - the £17,570 figure you mention (actually £18,570 really) is inclusive of savings income.

Dazed_and_C0nfused

Mrnkar_2 said:

Hi, Sorry not even sure if this is the correct board to post this or not. 
To cut a long story short I will send attachments but basically my understanding is that if your income is below £17,570 then you are allowed to have an Allowance of £5000 interest on savings before you have to pay tax on it? My husband's 23/24 income was £15,878 but they have added £3,578 untaxed interest under income and now says he owes tax. 
He had already paid tax on some of his income and in fact they actually sent him a refund so not sure why they now says he owes it. 
Any help much appreciated please save thank you.

You have misunderstood the bit in bold. Each £1 of non savings non dividend income (earnings, pension, rental income etc) above his Personal Allowance reduces the £5,000 savings starter rate band by £1.

So once non savings non dividend income is £5,000 above his Personal Allowance he loses all of that £5,000 savings starter rate band.

Those screenshots show his non savings non dividend income is £15,877.  So his savings starter rate band is reduced from £5,000 to £1,693 (interest taxed at 0%).  Plus he gets the savings nil rate band of £1,000 (interest taxed at 0%).

So the tax on his interest of £3,578 is,
£1,693 x 0% = £0.00
£1,000 x 0% = £0.00
£885 x 20% = £177.00
Total tax due on the interest = £177.00

It would have made more sense to send a smaller refund but only HMRC will know why it has happened the way it has.

Mrnkar_2

Thank you. That explains it well. I learn something new every day.