Tax Free Saving Allowance

luci

Dazed_and_C0nfused said:

luci said:

Dazed_and_C0nfused said:

luci said:

Dazed_and_C0nfused said:

luci said:

DRS1 said:

luci said:

Dazed_and_C0nfused said:

pumpkinpie01 said:

Hi, recently retired and earning about £200 per month from a small private pension, no state pension for another 10 years.
My question is can my remaining personal tax allowance (1257L) be used against saving interest?
Thanks for reading 😃

Yes, any unused Personal Allowance is used against taxable interest.

Once that is used you have the next £5,000 interest which would be taxed at 0% (savings starter rate band).

And after that another £1,000 is also taxed at 0% (savings nil rate band, aka Personal Savings Allowance).

Those things are applied in that order and assume you don't have enough interest to be a higher rate payer.

I am always confused when only the Personal Savings Allowance is mentioned when a tax free allowance is mentioned. Why is the £5000 Savings Starter Rate not promoted if that comes before the PSA? 

My understanding of the Savings Starter Rate may be way off.

Probably because the starter rate falls away at lower incomes - even a higher rate tax payer gets the PSA (though only £500 worth).

Sorry for being thick. What do you mean by "falls away"?

My (poor) understanding is that the £5000 Savings Starter Rate is in addition to your £12570 tax free allowance, then the PSA is on top of that. Is that correct or am I way off?

You are right.  But for each £1 of basic rate band used by earnings, pension, self employment profits etc you lose £1 of the savings starter rate band.

So someone earning say £20k or with pension income of £20k won't have any savings starter rate band to use.

Note dividend income is taxed after non savings and savings income so does not reduce the savings starter rate band available.

Thanks, that was helpful.

I'm currently drawing £12570 from a SIPP, so that I don't pay tax. Would I have a Savings Starter Rate on top of that?

If your only non savings non dividend income is £12,570 them yes.

It would be the full £5,000.  If you apply for Marriage Allowance it would be reduced to £3,740.

Thanks again.

I have a NS&I Guaranteed Income Bond which pays the interest into my current account monthly, rather than compounding it. The interest should be around £630 this year. Does that mean I will have £4370 allowance for other interest? I think I am getting a better understanding, thanks.

Yes, but it's not an "allowance".

You would have another £4,370 interest that would be taxed at a 0% tax rate.

That was badly worded, sorry.

I won't earn enough interest to be taxed on it in that case. I'm taxed on my SIPP, which is usually refunded, but I haven't received anything for this year yet. I might have to look into it, as I would have expected to receive a rebate by now. 

Many thanks for your help and patience.

molerat

You can avoid being taxed on your SIPP, or at least having any tax deducted returned by the end of the tax year, by working your withdrawals within the PAYE system.  Taking multiple payments with the final one in March will ensure the correct tax is deducted over the year.

luci

molerat said:

You can avoid being taxed on your SIPP, or at least having any tax deducted returned by the end of the tax year, by working your withdrawals within the PAYE system.  Taking multiple payments with the final one in March will ensure the correct tax is deducted over the year.

Thanks.

What do you mean by, "working your withdrawals within the PAYE system"?

I have been taking out the same amount monthly for a few years, but there's always a small amount of tax deducted. It's just under 3%, so not a big deal, but I like things to be correct.

I've just Googled to find out the period that refunds are normally processed and found this, which may explain why I haven't received anything for this year yet.

"As of July 2025, HMRC confirmed significant delays in processing certain refund requests due to backlogs, with some refunds taking many months or longer. Some refund requests submitted as early as December 2024 were not expected to be addressed until August 2025."

Dazed_and_C0nfused

luci said:

molerat said:

You can avoid being taxed on your SIPP, or at least having any tax deducted returned by the end of the tax year, by working your withdrawals within the PAYE system.  Taking multiple payments with the final one in March will ensure the correct tax is deducted over the year.

Thanks.

What do you mean by, "working your withdrawals within the PAYE system"?

I have been taking out the same amount monthly for a few years, but there's always a small amount of tax deducted. It's just under 3%, so not a big deal, but I like things to be correct.

I've just Googled to find out the period that refunds are normally processed and found this, which may explain why I haven't received anything for this year yet.

"As of July 2025, HMRC confirmed significant delays in processing certain refund requests due to backlogs, with some refunds taking many months or longer. Some refund requests submitted as early as December 2024 were not expected to be addressed until August 2025."

What is your tax code?

If it isn't 1257L check your Personal Tax Account to see what the make up of your code is as there could be a simple explanation as to why tax is being deducted.

Bigwheels1111

Checking your tax code is key,
I was a carer for many years.
I went back to full time work this year.
As I did not have a p45, I needed to fill out a starter check list.
I submitted this to my new employer.
All was fine for 6 weeks.
Then HMRC lowered my tax code to 506L I think it was.
So I was being taxed near on double. Well that’s what it looked like.
I called and was told, the deductions were 4K for careers allowance and 3K for interest tax.
As carers allowance stops when you earn over £125 ish a week that was wrong and I have not had any interest that was also incorrect.
Figures were correct there and then, I was surprised how simple and quick it was.
I will now self assess in April 26 and pay tax on the interest I owe, without it affecting my tax code.

luci

Dazed_and_C0nfused said:

luci said:

molerat said:

You can avoid being taxed on your SIPP, or at least having any tax deducted returned by the end of the tax year, by working your withdrawals within the PAYE system.  Taking multiple payments with the final one in March will ensure the correct tax is deducted over the year.

Thanks.

What do you mean by, "working your withdrawals within the PAYE system"?

I have been taking out the same amount monthly for a few years, but there's always a small amount of tax deducted. It's just under 3%, so not a big deal, but I like things to be correct.

I've just Googled to find out the period that refunds are normally processed and found this, which may explain why I haven't received anything for this year yet.

"As of July 2025, HMRC confirmed significant delays in processing certain refund requests due to backlogs, with some refunds taking many months or longer. Some refund requests submitted as early as December 2024 were not expected to be addressed until August 2025."

What is your tax code?

If it isn't 1257L check your Personal Tax Account to see what the make up of your code is as there could be a simple explanation as to why tax is being deducted.

I have two tax codes, S1005L for my SIPP and S63T for a very small pension of £53.26 / month (yes, really!) According to HMRC, I have a deduction of £1877 for untaxed interest from savings.

Despite getting exactly the same payment of £988.33 / month from my SIPP since 2016, the HMRC website says, "This pension provider told us you are not paid regularly. We cannot estimate your annual taxable income from the information they have sent. So we are using £9,883 so you do not pay too much tax.

I have updated the figure on the HMRC website to the correct amount of £11860.

Dazed_and_C0nfused

luci said:

Dazed_and_C0nfused said:

luci said:

molerat said:

You can avoid being taxed on your SIPP, or at least having any tax deducted returned by the end of the tax year, by working your withdrawals within the PAYE system.  Taking multiple payments with the final one in March will ensure the correct tax is deducted over the year.

Thanks.

What do you mean by, "working your withdrawals within the PAYE system"?

I have been taking out the same amount monthly for a few years, but there's always a small amount of tax deducted. It's just under 3%, so not a big deal, but I like things to be correct.

I've just Googled to find out the period that refunds are normally processed and found this, which may explain why I haven't received anything for this year yet.

"As of July 2025, HMRC confirmed significant delays in processing certain refund requests due to backlogs, with some refunds taking many months or longer. Some refund requests submitted as early as December 2024 were not expected to be addressed until August 2025."

What is your tax code?

If it isn't 1257L check your Personal Tax Account to see what the make up of your code is as there could be a simple explanation as to why tax is being deducted.

I have two tax codes, S1005L for my SIPP and S63T for a very small pension of £53.26 / month (yes, really!) According to HMRC, I have a deduction of £1877 for untaxed interest from savings.

Despite getting exactly the same payment of £988.33 / month from my SIPP since 2016, the HMRC website says, "This pension provider told us you are not paid regularly. We cannot estimate your annual taxable income from the information they have sent. So we are using £9,883 so you do not pay too much tax.

I have updated the figure on the HMRC website to the correct amount of £11860.

That is where the issue was, you know a more accurate amount and once that is used to calculate a new tax code (in the next day or two) the untaxed interest element will be reduced to £70 as that is the only spare allowance you would actually have.

Not clear why you said you were taking £12,570 out of your SIPP though if you are only really taking £11,860?

I'm currently drawing £12570 from a SIPP, so that I don't pay tax. 

luci

Dazed_and_C0nfused said:

luci said:

Dazed_and_C0nfused said:

luci said:

molerat said:

You can avoid being taxed on your SIPP, or at least having any tax deducted returned by the end of the tax year, by working your withdrawals within the PAYE system.  Taking multiple payments with the final one in March will ensure the correct tax is deducted over the year.

Thanks.

What do you mean by, "working your withdrawals within the PAYE system"?

I have been taking out the same amount monthly for a few years, but there's always a small amount of tax deducted. It's just under 3%, so not a big deal, but I like things to be correct.

I've just Googled to find out the period that refunds are normally processed and found this, which may explain why I haven't received anything for this year yet.

"As of July 2025, HMRC confirmed significant delays in processing certain refund requests due to backlogs, with some refunds taking many months or longer. Some refund requests submitted as early as December 2024 were not expected to be addressed until August 2025."

What is your tax code?

If it isn't 1257L check your Personal Tax Account to see what the make up of your code is as there could be a simple explanation as to why tax is being deducted.

I have two tax codes, S1005L for my SIPP and S63T for a very small pension of £53.26 / month (yes, really!) According to HMRC, I have a deduction of £1877 for untaxed interest from savings.

Despite getting exactly the same payment of £988.33 / month from my SIPP since 2016, the HMRC website says, "This pension provider told us you are not paid regularly. We cannot estimate your annual taxable income from the information they have sent. So we are using £9,883 so you do not pay too much tax.

I have updated the figure on the HMRC website to the correct amount of £11860.

That is where the issue was, you know a more accurate amount and once that is used to calculate a new tax code (in the next day or two) the untaxed interest element will be reduced to £70 as that is the only spare allowance you would actually have.

Not clear why you said you were taking £12,570 out of your SIPP though if you are only really taking £11,860?

I'm currently drawing £12570 from a SIPP, so that I don't pay tax. 

My bad. What I meant, and should have said, is that I'm drawing £12499 in total from a SIPP and a small pension combined. Sorry about that. 

I shall call the SIPP provider and find out why they've told HMRC that I'm not paid regularly, when they've paid me exactly the same amount monthly for the past 9 years.

Thank you for your time and patience.

Dazed_and_C0nfused

luci said:

Dazed_and_C0nfused said:

luci said:

Dazed_and_C0nfused said:

luci said:

molerat said:

You can avoid being taxed on your SIPP, or at least having any tax deducted returned by the end of the tax year, by working your withdrawals within the PAYE system.  Taking multiple payments with the final one in March will ensure the correct tax is deducted over the year.

Thanks.

What do you mean by, "working your withdrawals within the PAYE system"?

I have been taking out the same amount monthly for a few years, but there's always a small amount of tax deducted. It's just under 3%, so not a big deal, but I like things to be correct.

I've just Googled to find out the period that refunds are normally processed and found this, which may explain why I haven't received anything for this year yet.

"As of July 2025, HMRC confirmed significant delays in processing certain refund requests due to backlogs, with some refunds taking many months or longer. Some refund requests submitted as early as December 2024 were not expected to be addressed until August 2025."

What is your tax code?

If it isn't 1257L check your Personal Tax Account to see what the make up of your code is as there could be a simple explanation as to why tax is being deducted.

I have two tax codes, S1005L for my SIPP and S63T for a very small pension of £53.26 / month (yes, really!) According to HMRC, I have a deduction of £1877 for untaxed interest from savings.

Despite getting exactly the same payment of £988.33 / month from my SIPP since 2016, the HMRC website says, "This pension provider told us you are not paid regularly. We cannot estimate your annual taxable income from the information they have sent. So we are using £9,883 so you do not pay too much tax.

I have updated the figure on the HMRC website to the correct amount of £11860.

That is where the issue was, you know a more accurate amount and once that is used to calculate a new tax code (in the next day or two) the untaxed interest element will be reduced to £70 as that is the only spare allowance you would actually have.

Not clear why you said you were taking £12,570 out of your SIPP though if you are only really taking £11,860?

I'm currently drawing £12570 from a SIPP, so that I don't pay tax. 

My bad. What I meant, and should have said, is that I'm drawing £12499 in total from a SIPP and a small pension combined. Sorry about that. 

I shall call the SIPP provider and find out why they've told HMRC that I'm not paid regularly, when they've paid me exactly the same amount monthly for the past 9 years.

Thank you for your time and patience.

I'm not sure that will help you much really.

Making sure the estimated pension figures on your Personal Tax Account match what you on expect to get is the most important thing for keeping your tax codes accurate.

luci

Dazed_and_C0nfused said:

luci said:

Dazed_and_C0nfused said:

luci said:

Dazed_and_C0nfused said:

luci said:

molerat said:

You can avoid being taxed on your SIPP, or at least having any tax deducted returned by the end of the tax year, by working your withdrawals within the PAYE system.  Taking multiple payments with the final one in March will ensure the correct tax is deducted over the year.

Thanks.

What do you mean by, "working your withdrawals within the PAYE system"?

I have been taking out the same amount monthly for a few years, but there's always a small amount of tax deducted. It's just under 3%, so not a big deal, but I like things to be correct.

I've just Googled to find out the period that refunds are normally processed and found this, which may explain why I haven't received anything for this year yet.

"As of July 2025, HMRC confirmed significant delays in processing certain refund requests due to backlogs, with some refunds taking many months or longer. Some refund requests submitted as early as December 2024 were not expected to be addressed until August 2025."

What is your tax code?

If it isn't 1257L check your Personal Tax Account to see what the make up of your code is as there could be a simple explanation as to why tax is being deducted.

I have two tax codes, S1005L for my SIPP and S63T for a very small pension of £53.26 / month (yes, really!) According to HMRC, I have a deduction of £1877 for untaxed interest from savings.

Despite getting exactly the same payment of £988.33 / month from my SIPP since 2016, the HMRC website says, "This pension provider told us you are not paid regularly. We cannot estimate your annual taxable income from the information they have sent. So we are using £9,883 so you do not pay too much tax.

I have updated the figure on the HMRC website to the correct amount of £11860.

That is where the issue was, you know a more accurate amount and once that is used to calculate a new tax code (in the next day or two) the untaxed interest element will be reduced to £70 as that is the only spare allowance you would actually have.

Not clear why you said you were taking £12,570 out of your SIPP though if you are only really taking £11,860?

I'm currently drawing £12570 from a SIPP, so that I don't pay tax. 

My bad. What I meant, and should have said, is that I'm drawing £12499 in total from a SIPP and a small pension combined. Sorry about that. 

I shall call the SIPP provider and find out why they've told HMRC that I'm not paid regularly, when they've paid me exactly the same amount monthly for the past 9 years.

Thank you for your time and patience.

I'm not sure that will help you much really.

Making sure the estimated pension figures on your Personal Tax Account match what you on expect to get is the most important thing for keeping your tax codes accurate.

Thanks again. I don't know why it went wrong for last year and this, as it was correct for 2023/24, but I have a vague recollection of amending something on HMRC a while ago, so that may be why it was correct for that year.