Tax on interest and pension

stevec59

Hi,
I’m receiving the state pension for the first time this financial year, so April 2025 to April 2026. The income from my pension will be £13,733.94, I’ve received the winter fuel payment of £200 and I’m not sure that I’m entitled to it, I thought that it was people born before 1950 or something like that, but I’ve just googled it and it says that people born before 22 September 1959 are entitled to it, I was born 6th April 1959, so I should be entitled to it, I e calculated that my interest on savings will be about £3,600, obviously not including ISA’s as that’s tax free, so total income £16,733.94. I was trying to work out if I’ll pay tax on the interest and if I can take some money out of my personal pension. I was looking at the personal allowance and the starting rate for savings, I think I’ve worked out that £16,733 - £12,570= £4163.94, so take that away from the £5,000 Starting rate = £836.06. Correct? So, as things stand I won’t pat tax on interest.  Next calculate if I can take money out of private pension, if I took £800 out of my private pension I’d still be ok, but I’m not sure if it’s worth the hassle as I don’t need the money, thoughts? 

If I was to take say £10,000, would I still get the £1,000 of interest tax free? If so, I’d pay tax on £2,600 at 20% that’s £520 , seems quite a lot. After April I’ll put more into an ISA, so less interest next year.
 Obviously I’ll have to pay some tax as my income is above £12,570, but there’s nothing I can do about that!
Im currently 66 years old and struggle with these calculations, so you feedback is appreciated.

Many thanks, Steve 

eskbanker

Depending on exactly how you process them, withdrawals from your personal pension will have 25% tax-free and the other 75% taxed at 20%, so the net effective rate is 15%.

Once your non-savings income exceeds £17,570 then you don't have any starter savings rate available but do still have the £1K personal savings allowance, which becomes £500 once into higher rate tax at £50Kish.

poseidon1

You should note if your total income exceeds £35k for the current year, there will be a claw back of the WFA you received. This may temper how much you choose to draw down from your private pension for the remains of this tax year - 

https://www.gov.uk/winter-fuel-payment

DRS1

I may be missing something but you say your pension is £13733.94 and your savings interest is £3600.  I assume you are ignoring the winter fuel payment as that is not taxable.

But then you say your total income is £16733.94.

Does that mean your savings interest is actually £3000?

Or is your total income £17333.94?

I confess I am also not sure that you worked out the reduction to the starter rate correctly.  It would be the pension income less the personal allowance not the total income less the personal allowance.  So £13733.94 - £12570 = £1163 So £5000 - £1163 = £3837 of the starter rate left.  Enough to cover the £3600 of savings interest.

stevec59

DRS1 said:

I may be missing something but you say your pension is £13733.94 and your savings interest is £3600.  I assume you are ignoring the winter fuel payment as that is not taxable.

But then you say your total income is £16733.94.

Does that mean your savings interest is actually £3000?

Or is your total income £17333.94?

I confess I am also not sure that you worked out the reduction to the starter rate correctly.  It would be the pension income less the personal allowance not the total income less the personal allowance.  So £13733.94 - £12570 = £1163 So £5000 - £1163 = £3837 of the starter rate left.  Enough to cover the £3600 of savings interest.

I didn’t do the sums right, interest is £3600 . Thanks