Basic Personal savings allowance queries.

phillyt2k

Hi all,

Apologies if these are answered elsewhere, I did a quick search for PSA topics, but everyone else's queries seem more complex/specific than mine. By all means point in the right direction if these have been answered before.

1. Is the only reason not to go over your PSA because it might push you into a higher tax band if the sum of your income and interest from savings is over £50270?

2. So if my income was 30K, and I had 50K savings in a 5% savings account earning me £2500 in interest this would be fine as I would only have a total of £32500? 

 3. I would get charged 20% on any interest over the 1K, so I would only see £2200 of interest after tax?

Dazed_and_C0nfused

1.  Not necessarily.  Some people have a strong aversion to paying may tax so so everything they can to avoid it.  And for certain people income within the savings nil rate band (aka PSA) increases their overall liability even though they have £500/£1000 interest taxed at 0%.

2.  You would remain a basic rate payer for interest purposes.

3.  Yes.  The first £1,000 would also be taxed but at a 0% rate.  

RedImp_2

Although on 3 you will see full interest but at some point your tax code will be adjusted to collect the tax from your income.

phillyt2k

RedImp_2 said:

Although on 3 you will see full interest but at some point your tax code will be adjusted to collect the tax from your income.

So would I see £2500 interest initially? Isn't there an option somewhere to pay the £300 immediately to avoid the tax adjustment? 

Dazed_and_C0nfused

phillyt2k said:

RedImp_2 said:

Although on 3 you will see full interest but at some point your tax code will be adjusted to collect the tax from your income.

So would I see £2500 interest initially? Isn't there an option somewhere to pay the £300 immediately to avoid the tax adjustment? 

No, banks stopped deducting tax nearly 10 years ago now.

Once you have the calculation from HMRC you will be able to pay it to HMRC and that will avoid the tax owed from the previous year being included in the next year's tax code.

It's normally a 3 year cycle,

Year 1 - earn the interest
Year 2 - the banks report the interest and HMRC check what is owed for year 1 and tell you
Year 3 - The tax owed for year 1 is included in your tax code (for year 3).