Reduction in personal allowance.

dresdendave

I've just checked my tax code for 2026/27 and I have had my personal allowance reduced by £101. Reason given, untaxed savings interest.

I'm a basic rate taxpayer, so could someone kindly calculate how much interest I would have to earn to give rise to this figure.

I don't complete a tax return so I assume they have worked off figures provided by my banks. What confuses me is that all my savings are either in ISA's or premium bonds plus a couple of small shareholdings.

If I were to contact HMRC, is it likely they would provide me with a copy of the information they received to calculate this figure?

Sorry if I'm asking basic questions but I've always worked on a PAYE basis and have never had to deal directly with HMRC before.

ac909045

As a basic rate taxpayer you normally have a £1,000 Personal Savings Allowance, so HMRC would only usually reduce your tax code if they expect your taxable savings interest to exceed that.

A £101 reduction in your personal allowance means HMRC think you’ll have about £101 of tax to pay on savings interest. At 20% tax, that suggests roughly £505 of taxable interest above your allowance.

So very roughly:

• £1,000 tax-free PSA
• plus about £505 taxable interest
  = around £1,500 total non-ISA savings interest expected.

ISAs and Premium Bonds shouldn’t count, so it may be based on old bank information or an estimate carried forward from a previous year. HMRC can usually tell you which bank/building society figures they used if you contact them or check your Personal Tax Account online.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6667890/reduction-in-personal-allowance

Do you really mean your Personal Allowance?

Or is it your tax code allowances that have been reduced?

What income is the tax code being used against, a job or a pension? And how much do you expect to get from this job or pension in 2026/27? What is your tax code?

vacheron

https://forums.moneysavingexpert.com/discussion/comment/81995090#Comment_81995090

A £100 reduction in your personal allowance would increase your taxable income by £100, resulting in an additional £20 tax to pay. This suggests that HRMC believe that the OP has exceeded their £1,000 PSA by £100 not £500.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81995254#Comment_81995254

Or has spare tax code allowances which the interest is using.

Which in turn could be correct, but could also need changing if HMRC have understated the op's earnings/pension income.

saajan_12

https://forums.moneysavingexpert.com/discussion/comment/81995090#Comment_81995090

No, absent something else going on it would be £1,101 interest earned. Thus after the 1k PSA, OP needs to be taxed on £101 which is equivanent to reducing the PA by £101. That's not the tax, its the interest income.

Exodi

And to work that backwards, assuming a rate of 4.5%, it's about £25k in taxable savings accounts (obviously actual amount depends on the rate of the accounts). So not the odd £1000 left in your current account paying 0.1% interest.

From the sounds of it, the OP doesn't have £25k casually sitting in a savings account.

I wonder, did the OP have £20k in a non-ISA savings account last tax year, that they just moved to an ISA at the start of this tax year, but HMRC has assumed the OP would earn the same interest as last year?

sheramber

If you phone they give you the details of what they are basing that figure on.

It is best to phone as soon as lines open to be at the front of the queue.

Sometimes you may get an answer shortly before time as staff may start work early.

zagfles

https://forums.moneysavingexpert.com/discussion/comment/81995465#Comment_81995465

Or it could be that HMRC think OP will earn less than the PA, if this is the case they (pointlessly) reduce the tax code by the amount of expected interest. So it could be HMRC think OP will earn £101 interest and that other income will be below £12469.

This is of course brain dead and achieves nothing, as earning around £100 interest will never be taxable except for very high earners, so changing the tax code is pointless and could well result in too much tax being collected, it'll almost never be helpful in collecting the right amount of tax and is far more likely to cause tax to be incorrect. But that's the way the HMRC PAYE system works, they've not updated it to cope with the "new" interest rules, well it's only been 10 years, give them a chance 😄

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81995742#Comment_81995742

It is best to phone as soon as lines open to be at the front of the queue.

OP- The lines open officially at 08.00 and you should get someone to answer in 10 to 20 minutes ( as opposed to usually much longer during the day )

Sometimes you may get an answer shortly before time as staff may start work early.

I tried at 07.58 once but it did not work, but apparently it does sometimes.

sheramber

https://forums.moneysavingexpert.com/discussion/comment/81995920#Comment_81995920

It depends if anyone has chosen to start work early. Apparently not on the morning you phoned.

Someone did report getting an answer at 7.45am.