HMRC Tax Code Notice "less untaxed interest".

anotherbob

On my Tax Code Notice for 26/27 there's a three figure amount under "untaxed interest" in the tax-free amount.

I'm a complete novice in these matters, but I'd like to avoid this if possible. I assume the figure refers to interest I am receiving from an easy-access savings account I have with (at the moment) about £20k at 4.06% and a regular saver into which I am paying £200 a month for 12 months. I have an ISA with £20k which I opened last year. My income is from a private pension plus my State pension.

What would be the best way to minimize the interest which HMRC can include in my Tax-Free calculations?

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6660795/hmrc-tax-code-notice-less-untaxed-interest

Put the capital into a Cash ISA or non interest paying account.

But it's not very MSE to be worse off overall so maybe consider it that is really your best option. A Cash ISA with a lower interest rate might pay more once the tax is factored in but equally if might not. It depends on a fair bit of info you haven't provided.

For a start what does "last year" mean? 2025 (which could fall into this tax year) or the 2024/25 tax year?

Roughly how much is your total pension income each year?

dunstonh

What would be the best way to minimize the interest which HMRC can include in my Tax-Free calculations?

It can help if the gross return on tax free options (such as ISAs, pensions and other tax wrappers) is greater than the net return on taxable options.

You say you are getting 4.06%. If that amount is fully above your allowance, then you are getting 3.27% net. If you can get more than 3.27% in a cash ISA, then its common sense to move it to a cash ISA.

Plus, with the tax on interest going up in 2027, it will be more important.

EthicsGradient

https://forums.moneysavingexpert.com/discussion/6660795/hmrc-tax-code-notice-less-untaxed-interest

A "three figure amount" in your tax-free amount, if you're a basic rate payer (in which case the latter is £1000) is not, in itself, a problem. If you had £20k at 4.06% interest for a year, that'd be £812, and whatever you get on the regular saver, it wouldn't be enough to reach £1000.

But if you're thinking that you may soon have a bit more than £20k (or that interest rates could rise), you could put some into a cash ISA. At the moment, the Trading212 cash ISA pays a better rate (4.68% - see https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/#easyaccess ) than the before-tax figure for non-ISA accounts.

fuzzzzy

I am guessing you must be a higher rate tax payer with only a £500 savings allowance? Otherwise I would not expect you to be paying any tax on savings of that level. I would put your £20k into an easy access flexible ISA after 6 April.

Dazed_and_C0nfused

Or they could have very low pension income and the interest is using up spare tax code allowances?

fuzzzzy

Looking at my tax code notice the note for the "less untaxed interest" says the estimate takes into account any Starter Savings Rate or Personal Savings allowance.

I think maybe the OP only has a £500 Personal Savings allowance and will be taxed on savings interest over that? Or maybe they are a basic rate taxpayer but the estimate for savings interest is based on interest earned before they put £20k in an ISA "last year" thereby taking their interest over £1k in the previous tax year?

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81933080#Comment_81933080

At the moment the estimate used in calculating the 2026/27 tax code, for most people, will be the 2024/25 interest reported by banks and building societies.

It's possible that the op isn't able to use the savings nil rate band (aka Personal Savings Allowance) but until they provide some info about their pension income it's all guesswork.

anotherbob

Thank you for all the comments, some of which I understood:)

My monthly income from my pensions is £1500 near enough.

lr1277

Let me tell you my mum's story. Sorry this might get long. Whilst it won't answer your question it may explain some potential changes in your after tax income.

My dad died on 2022 and then suddenly she got his pension income and savings interest. She went from paying no taxes to being a tax payer.

About 1/3 of her income is taxed at source and the rest is not, which includes 4 figure savings interest. Even though she didn't pay tax for a long time, because of some of the income that was not taxed at source she has been completing Self Assessment returns for many years, from long before dad passed.

Then in autumn 2024, she got about 4 tax code change notices, each one reducing her after tax income from her pension that was taxed at source. I did not understand it, but we did get a list of the interest payments mum received from HMRC. This helped us complete her 23/24 tax return.2

I thought this would be sorted out with submitting her tax return. So in July 2025, we submitted her 24/25 tax return.

In December HMRC sent her another tax code change notice for the 25/26 year, reducing her after tax income.

Then in January 2026, HMRC sent her a tax code notice for 26/27. I did not know at the time these documents had arrived.

So we made a payment in advance in January for the 25/26 tax year.

About 3 weeks ago I found out about these notices and they really frustated me as we had made a payment in advance for 25/26.

So we rang HMRC (whiich may lead to another story) and explained about the tax return and the payment in advance that had been made.

The HMRC employee agreed to zero the savings interest component for the 25/26 tax year. Now in the 4-6 phone calls to HMRC since autumn 2024, this is the first time this offer has been made. So I asked him to zero the interest for the 26/27 tax year which he agreed to do.

Today I saw the revised tax code notices and the tax codes had indeed been reduced. The savings interest was showing (though I didn't check if the figure was the same as before the zeroing of the interest). However the tax code had reduced markedly.

The proof will be in the March pay and payslip for the 25/26 tax year and the April pay and payslip for the 26/27 tax year.

The reason I mention this that mum received many changes in her tax code for both the current tax year and the next tax year. You need to read these carefully, noting the tax code and the tax year to which they apply. In my opinion, HMRC is trying to claw as much tax that is not taxed at source. Even after submitting a self assessment return, from which the next years income can be estimated, HMRC kept sending tax code changes to my mum's and my frustration.

Even though the tax code for 26/27 has been reduced since January, there is no saying whether the tax code will be increased again once HMRC receive an interest update from a savings institution.

Finally to answer your question if you have used your ISA allowance for 25/26, there are premium bonds. You swap a guaranteed interest rate for risky tax free winnings. My only advice would not to let the tax tail wag the income dog but that is your decision to make. Also the 26/27 tax year is almost upon us so on or after 6th April move 20k to a cash ISA thereby reducing your tax liability.

Hope that helps.

fuzzzzy

https://forums.moneysavingexpert.com/discussion/comment/81933126#Comment_81933126

Ok so guessing maybe you earned over £1000 in savings interest in 24/25 and this is what HMRC are estimating your savings interest in 26/27, however it is likely to be less as you have since moved £20k capital to an ISA. Update HMRC with your estimated savings interest for 26/27 if it is likely to be less than £1000. You could still put some of your easy access taxable savings in an ISA next tax year though if you open an ISA with a rate better than your taxable savings account.