Tax Code change and savings interest

Jacklob

Hi, another question regarding interest  on savings. Last tax year I started withdrawing from my SIPP with monthly UFPLS. I was issued a full tax code 1257L, therefore I paid no tax each month. Today my tax code has been changed to 1042L, therefore an allowance of £10420. I understand this is due to savings interest (no tax due)they have a record of for the 23/24 tax year (as last year not finalised). I have had no income but savings income of around £3000 for at least the last 10 tax years.  Even though I will probably have this amount of interest this tax year(possibly more), it will always stay within the starting rate of £5000 and PSA of £1000. I have no other income. I understand that the end of this tax year it will all be finalised and I will be owed a refund of the £424 that it looks like I,ll be paying (have just had my fist UFPLS today and they have taken £35.40 tax). Won’t this, however also happen next tax year and every year after so I will permanently be owed tax. If this is the case I will never get it back as I,ll get a refund next tax year but then have tax taken next…. and on it will go. If I end up receiving the full £6000 savings tax I am able to get tax free this will even make it worse. (they,ll reduce my personal allowance by this and I,ll pay £1200 tax on this).  Is there anyway to pay no tax as I will never be liable for it, until State pension age in 12 years time. If there are any HMRC tax experts who can advise on this please.

molerat

What is the estimated annual income shown against that pension ?  You need to ensure it is at / higher than actual, maybe make it the full £12570

Jacklob

thank you for the response, it’s only showing estimated £375 and that I will “not be liable to tax this tax year”   I took out the full allowance last tax year. So increasing it to full allowance will sort this out, seems a very bizzare system.

Dazed_and_C0nfused

Jacklob said:

thank you for the response, it’s only showing estimated £375 and that I will “not be liable to tax this tax year”   I took out the full allowance last tax year. So increasing it to full allowance will sort this out, seems a very bizzare system.

Not sure why your estimated pension income would be just £375 but that is why your tax code allowances have been reduced by the interest.

You can only use the savings starter rate and savings nil rate bands if you have used all your Personal Allowance and with estimated pension income of just £375 you have a lot of spare Personal Allowance to use.

If you update your estimated pension income to say £12,570 there will be no unused Personal Allowance so your tax code will be amended to 1257L (based on the interest all then being taxed at 0%).

Note your Personal Allowance is different to your tax code allowances and your Personal Allowance would only be reduced if your adjusted net income was £100,002 or more.