Tax Codes & Starting Rate For Savings

JS999uk

I have just got off the phone with HMRC, and the operative seemed to suggest that my wife will not benefit from the “starting rate for savings” due to me using the marriage allowance.

Is this correct?

Her tax code was 1131N (2025/2026 tax year) but has been reduced to 940N for the 2026/2027 tax year.

She paid no tax on her taxable savings interest in the 2024/2025 tax year due to the starting rate for savings allowance and actually received a tax refund of over £350.

In the 2025/2026 tax year her income from pension was less than £10,000.00 and her taxable savings interest was less than £1,000.00 so no need to use the starting rate for savings.

When we contacted HMRC, 18/05/2026, to ask for her tax code to be changed back from 940N to 1131N the request was refused and we were told it was because I was claiming the marriage allowance which meant my wife would not receive the “starting rate for savings” which she may not require anyway.

Does anybody know why my wife’s tax code has fallen to 940N, why HMRC will not return it to its previous rate of 1131N and whether my wife IS eligible for the “starting rate for savings” should she require it?

Her income for 2026/2027 is from her pension, which is less than £10,000.00 per annum, plus her savings interest.

She does not receive a state pension.

I am using the marriage allowance.

It is possible we misunderstood what the HMRC operative told us, but this is what we believe they meant.

Whether we understood correctly or not my wife is currently paying income tax on her pension, which is less than £10,000.00 per annum, and her taxable savings interest will not be fully known until the end of the tax year but was less than £1,000.00 last year 2025/2026.

molerat

Her on line tax account / coding letter she received from HMRC will show exactly why her code has been reduced. Her on line account will also show her expected income from thar taxed source. I suspect the income from that source is incorrectly estimated and an interest deduction has been made to use up the rest of her allowance. Has she checked ?

sheramber

Your wife has a personal allowance of 11310 due to transferring some of her allowance to you.

How much is person? You can check in personal tax account hos much HMRC have estimated it to be for 26/27.

How much is her interest expected to be?

zagfles

Yes she is entitled to the starting rate should she need it, if some HMRC operative told you otherwise they were incompetent. It's likely that the reduced tax code is due to estimated interest, they (pointlessly) reduce the code of people expected to earn under the personal allowance, because they haven't updated their systems to cope with the way taxation of interest works and has worked since 2016.

As above check the coding notification, if it is due to interest, the way round it is to log into her online tax account and give an estimate of the pension income, if you're not sure estimate the max it could possibly be. Then there should be no tax on the pension and any tax taken should be refunded.

.

JS999uk

Hello, thanks for the replies.

After logging in to my wife's account, I can see that HMRC have deducted the total savings interest amount that my wife earned in 2024/2025 tax year from her 2026/2027 personal tax allowance.

That combined with the marriage allowance has dropped it to 940N.

She did not pay any tax on her savings interest in 2024/2025 as she used her personal savings allowance & the starting rate for savings allowance to negate it.

However, this has now been taken off her 2026/2027 personal tax allowance.

I am not sure if that is a mistake or not.

Should they not at least take off her personal savings allowance thus boosting her tax code for 2026/2027from 940N to 1040N?

She earned less interest than the personal savings interest allowance in 2025/2026, so again, she will pay no tax on her interest and did not use the starting rate for savings.

Should they be reducing her tax allowance for 2026/2027 by the amount of savings interest earned in 2024/2025?

zagfles

https://forums.moneysavingexpert.com/discussion/comment/82004882#Comment_82004882

No they shouldn't, but they do. Is her pension more than £9409? Unless it is she won't pay tax on the pension anyway. If it is, give them an estimate like I said above of the max it could be.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82004882#Comment_82004882

I think you are getting things a little mixed up. Not helped by the nonsense someone in HMRC has told you.

The savings starter rate band (and savings nil rate band, aka Personal Savings Allowance) are both given automatically.

She either has sufficient income to use them or she doesnt.

But they can only be used after her Personal Allowance of £11,310 has been used. And the savings starter band has to be used before the savings nil rate band can be used.

The key think is how much non savings non dividend income she expects to have in the current tax year i.e. what does she think her P60 for the pension where this tax code is going to be used show for 2026/27?

molerat

And what is showing as the estimated income from the source the code is set against ?

JS999uk

Hello again.

My wife's total taxable income from salary, pension & interest for 2024/2025 was £15,364 gross with a tax code of 1270L. she retired mid year and received a tax refund for overpaid tax.

2025/2026 her total taxable income from pension & interest was £10,184 gross with a tax code of 1131N.

This year, 2026/2027, her total taxable income will be £9,617 pension & unknown interest income with a tax code of 940N.

I just do not understand why her tax code is not 1131N and why she is paying PAYE tax from a pension of £9617.

It is not a lot of tax, but she should not be paying it.

zagfles

Have you done what we told you and checked the expected income from the pension, and changed the estimate online if it's wrong? That will solve the problem.

If you want the technical nitty gritty, the way HMRC work is look at the expected PAYE income and if that doesn't use up the personal allowance, they allocate some of the personal allowance to the expected interest. So if they expect pension income to be £9000 and interest to be £2000 they chop £2000 off the tax free amount in the tax code. But if they expect pension income to be £13000 and interest £2000, they don't chop anything off as there is no PA spare, so they allocate the £2000 to the starting rate/PSA.

Obviously anyone with an ounce of common sense can see this is a brain dead way of doing things, chopping £2000 off the tax free amount is pointless since it makes zero difference if the estimates are correct, but if the PAYE income is under estimated a bit it would result in tax being deducted when none is due.

So make sure the estimated income from the pension is correct and if unsure what it'll be err on high side. That will ensure no tax on the pension and any taken will be refunded.

sheramber

https://forums.moneysavingexpert.com/discussion/comment/82006418#Comment_82006418

What figure have HMRC estimated first her 26/27 interest?

The figure will be in her personal tax account and on her code calculation.

That is the figure that will have reduced her tax code.