Tax Codes & Starting Rate For Savings

JS999uk

Hello zagfles, I have updated the taxable income figure in my wife's tax account.

It was lower than her actual figure so I do not know what effect that may have.

Thanks for your help.

zagfles

https://forums.moneysavingexpert.com/discussion/comment/82006449#Comment_82006449

You should get a new tax code in a few days where the tax free amount is at least the pension amount, so no tax is deducted

Albermarle

Also be aware if she does pay more tax than she should, then she will get it back when her final calculation is done after the tax year ends.

A tax code is only an attempt by HMRC to take the right amount of tax.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82007129#Comment_82007129

But in this instance she is likely to get it back the first time the new tax code is used, presumably sometime in June 2026.

JS999uk

If you are not earning enough income to be paying tax, why do they reduce your tax code by the amount of interest you earned, making it more likeley that you will pay tax the following year even though you are still not earning enough to pay tax if you had the correct tax code?

That is, if she was not liable for paying tax on her savings interest why take that amount off her tax allowance the following year when she did not owe HMRC any tax on it?

molerat

All interest is taxable, there is no "tax free allowance", but some is taxable at 0%. Before you have access to those 0% bands you must first use up your normal tax allowance so if the expected income is below that allowance interest will be allocated to the remainder. As has been said earlier it is a bit silly doing this and must take up a lot of advisors time explaining and changing it. Some income streams often show a lower expected income than the previous year, another one of those silly things that happen so checking this is something you need to do every year at the start of April if your income is lower than your allowance or you have more than one income source.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82007771#Comment_82007771

They haven't specially reduced it by the amount of interest earned though.

It's all about using the spare tax code allowances. Which are used before either of the 0% tax bands for interest are used.

What is actually wrong in your wife's case is the estimate of her pension income is insufficient. HMRC normally base this on the latest Real Time Information submissions from employers and pension payers.

So for the initial tax code for 2026/27 that is often based on the December 2025 or January 2026 information, which is then annualised.

What you know, which HMRC don't*, is that she will get an annual increase in her pension so HMRC's estimate is too low. But you have now provided a more accurate figure yourself so the tax code will be updated quickly to reflect that, meaning she should have sufficient allowances in the tax code to mean no tax is paid on the pension.

*they must realise lots of pensions get an annual increase but won't know the specific rate for each pension scheme. So any figure they use will be ok for some people but still wrong for lots of others.

JS999uk

I do not think I am clever enough for all this.

I thought everybody started the tax year with an allowance of £12,570 and if you did not owe any tax it would stay at that.

£11,310 / £13,830 if marriage allowance being used dependent on who is receiving and who is giving.

It sounds odd that your tax code should be reduced when you owe no tax.

Thus making it more likely that you will end up paying tax even though you should not be.

Anyway, when I check her tax liability at the end of March I will be using the £11,310 tax allowance she should be receiving to work everything out, and if needed the starting rate for savings & her personal savings allowance.

For me, that seems the simplest way to work it out.

I think I had better check my own tax code now, should be 1383N but after all this I bet it's not.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82008822#Comment_82008822

Your own tax code may be 1383M but I cannot see any reason why it would be 1383N.

But there could be lots of reasons why it won't be 1383M.

And don't forget receipt of Marriage Allowance does not entitle you to an increase Personal Allowance. It gives you a tax reduction of £252 when your overall tax liability is calculated.

The extra tax code allowances given for Marriage Allowance are simply a mechanism HMRC use to try and give you the benefit of that deduction during the tax year.

JS999uk

My mistake Dazed_and_C0nfused, you were correct it should have been an M but the number was 1341, so I have updated my estimate in my tax account as suggested by zagfles.

I will have to see if that has any effect on the tax code.

No matter, my main concern was my wife not having any tax deducted from her pension which appears to have been the result of all your advice.

Thank you all.