Untaxed interest

Beeblebr0x

@2childmum2. Thank you for your reply.

Sorry to be dim, but what did HMRC mean by saying "it could be removed by me changing my estimated taxable income to match the standard personal allowance"? Just alter the figure to £1000? I'd have thought the figure should be £0.

To be clear - The only income my wife is liable to pay tax on is her company and state pensions. Before she reached state retirement age, her company pension was around £4500 pa. The amount of investment interest has never exceeded the £1000 allowance.

Sarahspangles

HMRC use a forecast for savings interest that is based on a prior year. I think 2025/26 notices of coding are based on 2023/24 because the banks and building societies have until the end of this month to report 2024/25’s interest. The goal is to collect approximately the right amount of tax, but the calculation is only ever provisional until confirmed by a process that runs after the end of the tax year.

It’s possible that HMRC are double counting savings for some reason, if so your wife can amend the expected figure in her personal tax account.

It took me a while to ‘get’ that the personal savings allowance is not triggered until other allowances have been exhausted. Firstly the personal allowance and then the starter savings allowance. So if the State Pension plus work pension use up most of the £12,570 plus £5,000, then she would be able to use what is left, plus £1,000, against the difference in interest on savings. 

2childmum2

Beeblebr0x said:

@2childmum2. Thank you for your reply.

Sorry to be dim, but what did HMRC mean by saying "it could be removed by me changing my estimated taxable income to match the standard personal allowance"? Just alter the figure to £1000? I'd have thought the figure should be £0.

To be clear - The only income my wife is liable to pay tax on is her company and state pensions. Before she reached state retirement age, her company pension was around £4500 pa. The amount of investment interest has never exceeded the £1000 allowance.

So they meant for me to give an estimate on my online tax account of my taxable income ( in my case to estimate that my pension will be £12 570 instead of £5000) and that would remove the estimated interest  taxable amount from the code 


In my case I have never made the amount of interest that would mean I would pay any amount of tax on it, so I've no idea where they got the figure from.

Beeblebr0x

2childmum2 said:

Beeblebr0x said:

@2childmum2. Thank you for your reply.

Sorry to be dim, but what did HMRC mean by saying "it could be removed by me changing my estimated taxable income to match the standard personal allowance"? Just alter the figure to £1000? I'd have thought the figure should be £0.

To be clear - The only income my wife is liable to pay tax on is her company and state pensions. Before she reached state retirement age, her company pension was around £4500 pa. The amount of investment interest has never exceeded the £1000 allowance.

So they meant for me to give an estimate on my online tax account of my taxable income ( in my case to estimate that my pension will be £12 570 instead of £5000) and that would remove the estimated interest  taxable amount from the code 


In my case I have never made the amount of interest that would mean I would pay any amount of tax on it, so I've no idea where they got the figure from.

Hmm.

I fail to see how what you earn can be related to your savings.

I've had a look at the app and I can't see where one would make the adjustment.

Sarahspangles

Beeblebr0x said:

2childmum2 said:

Beeblebr0x said:

@2childmum2. Thank you for your reply.

Sorry to be dim, but what did HMRC mean by saying "it could be removed by me changing my estimated taxable income to match the standard personal allowance"? Just alter the figure to £1000? I'd have thought the figure should be £0.

To be clear - The only income my wife is liable to pay tax on is her company and state pensions. Before she reached state retirement age, her company pension was around £4500 pa. The amount of investment interest has never exceeded the £1000 allowance.

So they meant for me to give an estimate on my online tax account of my taxable income ( in my case to estimate that my pension will be £12 570 instead of £5000) and that would remove the estimated interest  taxable amount from the code 


In my case I have never made the amount of interest that would mean I would pay any amount of tax on it, so I've no idea where they got the figure from.

Hmm.

I fail to see how what you earn can be related to your savings.

I've had a look at the app and I can't see where one would make the adjustment.

It’s PAYE > “Add Missing Income” which is admittedly not the best description.

Dazed_and_C0nfused

Beeblebr0x said:

2childmum2 said:

Beeblebr0x said:

@2childmum2. Thank you for your reply.

Sorry to be dim, but what did HMRC mean by saying "it could be removed by me changing my estimated taxable income to match the standard personal allowance"? Just alter the figure to £1000? I'd have thought the figure should be £0.

To be clear - The only income my wife is liable to pay tax on is her company and state pensions. Before she reached state retirement age, her company pension was around £4500 pa. The amount of investment interest has never exceeded the £1000 allowance.

So they meant for me to give an estimate on my online tax account of my taxable income ( in my case to estimate that my pension will be £12 570 instead of £5000) and that would remove the estimated interest  taxable amount from the code 


In my case I have never made the amount of interest that would mean I would pay any amount of tax on it, so I've no idea where they got the figure from.

Hmm.

I fail to see how what you earn can be related to your savings.

I've had a look at the app and I can't see where one would make the adjustment.

If you have unused Personal Allowance then those allowances are used by any untaxed interest.

You have to use all your Personal Allowance before you can use any savings starter rate band that is available.

And you have to use that before you can use the savings nil rate band (aka Personal Savings Allowance).

In your wife's case she has pension income in excess of £16,000 so she doesn't have any spare Personal Allowance.  Which means that the deduction in her tax code for the interest is because HMRC think she needs to pay tax on some of the interest they have estimated she will receive.

At the moment the estimate for 2025-26 is normally based on the interest actually received in the 2023-24 tax year.  Later this summer HMRC will have the actual interest details for 2024-25 from the banks and building societies.

Beeblebr0x

I thought all basic rate tax payers were allowed the first £1000 of investment income free of tax regardless of their earnings of up to £50270?  I've checked my wife's income for the last tax year and it was £13826. By my calculations she can earn £17314 before paying tax.

Re- your comment, "At the moment the estimate for 2025-26 is normally based on the interest actually received in the 2023-24 tax year. Later this summer HMRC will have the actual interest details for 2024-25 from the banks and building societies."

Will this sort itself out in the fullness of time or does my wife need to do anything now?

Dazed_and_C0nfused

Beeblebr0x said:

I thought all basic rate tax payers were allowed the first £1000 of investment income free of tax regardless of their earnings of up to £50270?  I've checked my wife's income for the last tax year and it was £13826. By my calculations she can earn £17314 before paying tax.

Re- your comment, "At the moment the estimate for 2025-26 is normally based on the interest actually received in the 2023-24 tax year. Later this summer HMRC will have the actual interest details for 2024-25 from the banks and building societies."

Will this sort itself out in the fullness of time or does my wife need to do anything now?

ISA's are "tax free", once the Personal Allowance is used any taxable interest will be taxed.  But some is taxed at a 0% tax rate (upto £6,000 for some people).

Yes it should sort itself out but if you are certain your wife cannot have more than a few hundred pounds untaxed interest then that means she is paying tax now unnecessarily.

Having said that it does seem unusual for someone to have more interest on their tax records than they actually received.

Beeblebr0x

As I remarked earlier, why should HMRC estimate any tax due on savings when the onus is on the tax payer to declare it? It seems a waste of everyone's time and effort.

Dazed_and_C0nfused

Beeblebr0x said:

As I remarked earlier, why should HMRC estimate any tax due on savings when the onus is on the tax payer to declare it? It seems a waste of everyone's time and effort.

HMRC get the details from banks and building societies and don't expect most people to have to declare it.

https://www.gov.uk/guidance/bank-and-building-society-interest-returns

The exception is where someone needs to file a tax return.