Starting rate for savings

Mary108

Hi all

I hope you're all doing well and enjoying the sunshine

I have a question about the amount of tax my Mum will need to pay on her savings interest for 2024 to 2025

Her income for 24-25 was £13,366.29

She will earn about £4621.00 in savings interest (without taking the £1000.00 'free' allowance off)

Her tax code for 24-25 was 1288L

Will she need to pay any tax on her savings interest? How would I work it out, please?

Many thanks

Mary 

eskbanker

Mary108 said:

Her income for 24-25 was £13,366.29

Is that income excluding the savings interest?  If so, then circa £600 of it will exceed her personal allowance and therefore incur tax of about £120, but the savings interest should all fit within the starter rate and the personal savings allowance....

Mary108

OK so I've just had a possible epiphany!

Is it.....

£13366.29 - earnings minus £12880.00 tax allowance = £486.29

£5000 starting rate for savings minus £486.29 = £4513.71

Savings interest earned 24-25 = £4621.72 minus £4513.71 = £108.01

£108.01 x 20% = £21.60 - this is the amount of savings interest Mum will have to pay for 24 - 25 ?

Mary108

Income is £13366.29 

Savings interest  earned = £4621.72

Dazed_and_C0nfused

Mary108 said:

OK so I've just had a possible epiphany!

Is it.....

£13366.29 - earnings minus £12880.00 tax allowance = £486.29

£5000 starting rate for savings minus £486.29 = £4513.71

Savings interest earned 24-25 = £4621.72 minus £4513.71 = £108.01

£108.01 x 20% = £21.60 - this is the amount of savings interest Mum will have to pay for 24 - 25 ?

I don't know where £12,880 has come from but assuming the £13,366 is pension or earnings, and not savings or dividends income, then the liability would be,

£13,366 less Personal Allowance £12,570 = £796 income to be taxed (£159.20 tax due unless she is Scottish resident).

The £4,621 interest will all be taxed,

£4,204 x 0% (savings starter rate)
£417 x 0% (savings nil rate)

If she has State Pension just be careful you have calculated her income correctly.  State Pension is never paid monthly.

She would need to check her Personal Tax Account or tax code notice to understand hey the code was 1288L.  There could be a valid reason.  Or it might be a mistake.

Mary108

Dazed_and_C0nfused said:

Mary108 said:

OK so I've just had a possible epiphany!

Is it.....

£13366.29 - earnings minus £12880.00 tax allowance = £486.29

£5000 starting rate for savings minus £486.29 = £4513.71

Savings interest earned 24-25 = £4621.72 minus £4513.71 = £108.01

£108.01 x 20% = £21.60 - this is the amount of savings interest Mum will have to pay for 24 - 25 ?

I don't know where £12,880 has come from but assuming the £13,366 is pension or earnings, and not savings or dividends income, then the liability would be,

£13,366 less Personal Allowance £12,570 = £796 income to be taxed (£159.20 tax due unless she is Scottish resident).

The £4,621 interest will all be taxed,

£4,204 x 0% (savings starter rate)
£417 x 0% (savings nil rate)

If she has State Pension just be careful you have calculated her income correctly.  State Pension is never paid monthly.

She would need to check her Personal Tax Account or tax code notice to understand hey the code was 1288L.  There could be a valid reason.  Or it might be a mistake.

Hi

So.....I understand everything you've said (tax code for Mum for 24-25 was 1288L) apart from £417.00 0% savings nil rate

You seem to be saying that she wont pay any tax at all on her savings for 24-25

Once the savings starter rate is used do we then use the £1000 savings allowance?

No state pension yet

She has a private pension but that is included in the £13366.29 income for 24 - 25

Dazed_and_C0nfused

Mary108 said:

Dazed_and_C0nfused said:

Mary108 said:

OK so I've just had a possible epiphany!

Is it.....

£13366.29 - earnings minus £12880.00 tax allowance = £486.29

£5000 starting rate for savings minus £486.29 = £4513.71

Savings interest earned 24-25 = £4621.72 minus £4513.71 = £108.01

£108.01 x 20% = £21.60 - this is the amount of savings interest Mum will have to pay for 24 - 25 ?

I don't know where £12,880 has come from but assuming the £13,366 is pension or earnings, and not savings or dividends income, then the liability would be,

£13,366 less Personal Allowance £12,570 = £796 income to be taxed (£159.20 tax due unless she is Scottish resident).

The £4,621 interest will all be taxed,

£4,204 x 0% (savings starter rate)
£417 x 0% (savings nil rate)

If she has State Pension just be careful you have calculated her income correctly.  State Pension is never paid monthly.

She would need to check her Personal Tax Account or tax code notice to understand hey the code was 1288L.  There could be a valid reason.  Or it might be a mistake.

Hi

So.....I understand everything you've said (tax code for Mum for 24-25 was 1288L) apart from £417.00 0% savings nil rate

You seem to be saying that she wont pay any tax at all on her savings for 24-25

Once the savings starter rate is used do we then use the £1000 savings allowance?

No state pension yet

She has a private pension but that is included in the £13366.29 income for 24 - 25

There is no separate "allowance" for savings interest.

Once the Personal Allowance and any available savings starter rate band is used she can then, and only then, use the savings nil rate (0% tax).  This is often called the Personal Savings Allowance but is a 0% tax rate/band, not an allowance in the normal sense.

Depending on why her tax code was 1288L (does she work from home?) there could be more savings starter rate band available.  But that won't alter the tax payable on the interest, that would still be a total of £0.

Mark_d

To earn that amount of interest I guess your mum would need more than 100,000 in cash savings.  That's a massive amount to hold in taxable savings accounts.  Are you sure the money isn't in cash ISAs?
I like to think that my finances are healthy but my cash is in Premium Bonds and current account.  My taxable interest is fairly minimal

Mary108

Mark_d said:

To earn that amount of interest I guess your mum would need more than 100,000 in cash savings.  That's a massive amount to hold in taxable savings accounts.  Are you sure the money isn't in cash ISAs?
I like to think that my finances are healthy but my cash is in Premium Bonds and current account.  My taxable interest is fairly minimal

She has fulfilled all her ISA allowances and does every year.....dropping money from taxable savings into ISAs as she's allowed.

She doesnt have much money in her pension from her ex employer and only has a tiny final salary pension. So she's trying to save on paying tax as much as she can

Mary108

Dazed_and_C0nfused said:

Mary108 said:

Dazed_and_C0nfused said:

Mary108 said:

OK so I've just had a possible epiphany!

Is it.....

£13366.29 - earnings minus £12880.00 tax allowance = £486.29

£5000 starting rate for savings minus £486.29 = £4513.71

Savings interest earned 24-25 = £4621.72 minus £4513.71 = £108.01

£108.01 x 20% = £21.60 - this is the amount of savings interest Mum will have to pay for 24 - 25 ?

I don't know where £12,880 has come from but assuming the £13,366 is pension or earnings, and not savings or dividends income, then the liability would be,

£13,366 less Personal Allowance £12,570 = £796 income to be taxed (£159.20 tax due unless she is Scottish resident).

The £4,621 interest will all be taxed,

£4,204 x 0% (savings starter rate)
£417 x 0% (savings nil rate)

If she has State Pension just be careful you have calculated her income correctly.  State Pension is never paid monthly.

She would need to check her Personal Tax Account or tax code notice to understand hey the code was 1288L.  There could be a valid reason.  Or it might be a mistake.

Hi

So.....I understand everything you've said (tax code for Mum for 24-25 was 1288L) apart from £417.00 0% savings nil rate

You seem to be saying that she wont pay any tax at all on her savings for 24-25

Once the savings starter rate is used do we then use the £1000 savings allowance?

No state pension yet

She has a private pension but that is included in the £13366.29 income for 24 - 25

There is no separate "allowance" for savings interest.

Once the Personal Allowance and any available savings starter rate band is used she can then, and only then, use the savings nil rate (0% tax).  This is often called the Personal Savings Allowance but is a 0% tax rate/band, not an allowance in the normal sense.

Depending on why her tax code was 1288L (does she work from home?) there could be more savings starter rate band available.  But that won't alter the tax payable on the interest, that would still be a total of £0.

Her tax code for 24-25 was 1288L as she was working from home for part of the year and HMRC allowed her to keep the 1288L allowance all year

So....on the information I've given you, she wont pay any money to HMRC for tax on savings fior 24-25?

Dazed_and_C0nfused

Mary108 said:

Dazed_and_C0nfused said:

Mary108 said:

Dazed_and_C0nfused said:

Mary108 said:

OK so I've just had a possible epiphany!

Is it.....

£13366.29 - earnings minus £12880.00 tax allowance = £486.29

£5000 starting rate for savings minus £486.29 = £4513.71

Savings interest earned 24-25 = £4621.72 minus £4513.71 = £108.01

£108.01 x 20% = £21.60 - this is the amount of savings interest Mum will have to pay for 24 - 25 ?

I don't know where £12,880 has come from but assuming the £13,366 is pension or earnings, and not savings or dividends income, then the liability would be,

£13,366 less Personal Allowance £12,570 = £796 income to be taxed (£159.20 tax due unless she is Scottish resident).

The £4,621 interest will all be taxed,

£4,204 x 0% (savings starter rate)
£417 x 0% (savings nil rate)

If she has State Pension just be careful you have calculated her income correctly.  State Pension is never paid monthly.

She would need to check her Personal Tax Account or tax code notice to understand hey the code was 1288L.  There could be a valid reason.  Or it might be a mistake.

Hi

So.....I understand everything you've said (tax code for Mum for 24-25 was 1288L) apart from £417.00 0% savings nil rate

You seem to be saying that she wont pay any tax at all on her savings for 24-25

Once the savings starter rate is used do we then use the £1000 savings allowance?

No state pension yet

She has a private pension but that is included in the £13366.29 income for 24 - 25

There is no separate "allowance" for savings interest.

Once the Personal Allowance and any available savings starter rate band is used she can then, and only then, use the savings nil rate (0% tax).  This is often called the Personal Savings Allowance but is a 0% tax rate/band, not an allowance in the normal sense.

Depending on why her tax code was 1288L (does she work from home?) there could be more savings starter rate band available.  But that won't alter the tax payable on the interest, that would still be a total of £0.

Her tax code for 24-25 was 1288L as she was working from home for part of the year and HMRC allowed her to keep the 1288L allowance all year

So....on the information I've given you, she wont pay any money to HMRC for tax on savings fior 24-25?

Correct.  It won't be tax free/exempt like an ISA is but from what you've posted it will all be taxed at 0% so nothing to actually pay (on the interest).