Tax on savings for non earner £18570 v. £19000

Ciprico

I understand the first £12570 is tax free,
then the starting rate for savings +£5000
then the PSA  +£1000

...giving total of £18,570  (on the basis no other income at all)

How is this impacted if the interest was say £19000

Is the top part above 18570 simply taxed at basic rate....?

At this threshold is it ever worth putting cash in a non interest account to maintain the £18570 ?

(I appreciate there are tax efficient places to put money {isa, gilts, sipp, savings accounts maturing following year etc}, so my question is specifically what happens if you breach the 18570 threshold, not how to avoid it)

TIA

(Edited to fix incorrect lower tax threshold)

Dazed_and_C0nfused

If your only taxable income was interest of £19,000 and you hadn't applied for Marriage Allowance then £430 would be taxed at 20%.

You seem to have got over excited with your Personal Allowance amount 😉

BreakingGlass

Personal Allowance is actually £12,570.
Hence in your example max £18,570 is 'tax free', with £430 being taxed at 20%.

ColdIron

Ciprico said:

I understand the first £12750 £12,570 is tax free,
then the starting rate for savings +£5000
then the PSA  +£1000

...giving total of £18,750 £18,570 (on the basis no other income at all)

Fixed that for you

At this threshold is it ever worth putting cash in a non interest account to maintain the £18750 £18,570?

No

Surely 80% of something is better than 100% of nothing?

Isthisforreal99

ColdIron 

Surely 80% of something is better than 100% of nothing?

It's a concept lots seem to struggle with and would rather have less income to achieve a goal of paying no tax.

Vitor

On the practical question: is it ever worth deliberately suppressing interest to stay below £18,750?

Almost never.

Why:

The marginal tax rate on the excess is only 20 percent.

You keep 80 percent of the extra interest.

Parking money in a non-interest account just to avoid tax is equivalent to accepting a 100 percent tax rate on that slice instead of 20 percent.

The only time this thinking makes sense is when breaching a threshold causes loss of something else (for example, child benefit tapering or higher-rate PSA reduction). That does not happen here.

Bobblehat

Vitor said:

On the practical question: is it ever worth deliberately suppressing interest to stay below £18,750?

Almost never.

Why:

The marginal tax rate on the excess is only 20 percent.

You keep 80 percent of the extra interest.

Parking money in a non-interest account just to avoid tax is equivalent to accepting a 100 percent tax rate on that slice instead of 20 percent.

The only time this thinking makes sense is when breaching a threshold causes loss of something else (for example, child benefit tapering or higher-rate PSA reduction). That does not happen here.

Deliberately shifting interest into a future year can be beneficial too under some circumstances.

ColdIron

Unless that year is 2027 when income tax on savings becomes 22% from 6th April

Bobblehat

ColdIron said:

Unless that year is 2027 when income tax on savings becomes 22% from 6th April

I was thinking of folks who are shifting to avoid going over their annual allowance .... i.e those who are trying to not pay any tax on interest either now, 2026 or 2027, by staying below their allowance!

Ciprico

So could you....?

Take 12570 from sipp (no ic tax)
7000 interest (20% tax on 1k)
1000 dividend (8.75% tax on 500)

Ie the excess interest and dividends don't reduce the starting rate for savings ?

(And income/pension over 12570 would reduce the 5k starting rate on interest? )

Dazed_and_C0nfused

Ciprico said:

So could you....?

Take 12570 from sipp (no ic tax)
7000 interest (20% tax on 1k)
1000 dividend (8.75% tax on 500)

Ie the excess interest and dividends don't reduce the starting rate for savings ?

(And income/pension over 12570 would reduce the 5k starting rate on interest? )

In this tax year yes.  But from April 2026 the basic rate tax on dividends changes to 10.75%

Only non savings non dividend income would reduce the savings starter rate band.