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  • FIRST POST
    • Banger696
    • By Banger696 11th Feb 19, 11:22 PM
    • 55Posts
    • 2Thanks
    Banger696
    Tax confusion
    • #1
    • 11th Feb 19, 11:22 PM
    Tax confusion 11th Feb 19 at 11:22 PM
    Hi


    Some confusion has crept into my mind about savings and tax. I am currently in receipt of ESA (contribution based) and inherited savings of 150k from my late mother. I have split this into two and put it in Paragon Bank and Charter Savings both 2 year fixed rate savings accounts. I get the interest monthly from the 2 accounts and that helps me to get by.


    As far as I am aware the 2 accounts are not taxed at source and my personal allowance is around 11k.



    Do I have to pay tax on the interest from these 2 accounts taking into account my ESA payments. A rough calculation still leaves me way under the 11k threshold.


    Any advice?
Page 1
    • Tarambor
    • By Tarambor 12th Feb 19, 3:37 AM
    • 4,852 Posts
    • 3,790 Thanks
    Tarambor
    • #2
    • 12th Feb 19, 3:37 AM
    • #2
    • 12th Feb 19, 3:37 AM
    Contributions based ESA is a taxable benefit so would need to be taken into account.

    Income related ESA isn't taxable however having 150k in the bank would exclude you from qualifying for it.
    • Banger696
    • By Banger696 12th Feb 19, 11:01 AM
    • 55 Posts
    • 2 Thanks
    Banger696
    • #3
    • 12th Feb 19, 11:01 AM
    • #3
    • 12th Feb 19, 11:01 AM
    Yes I know that. That is not the question, the question is do I pay tax on the interest from Charter and Paragon because it will be over 1000pa or not because it is under my 11k personal threshold?
    • polymaff
    • By polymaff 12th Feb 19, 11:28 AM
    • 2,684 Posts
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    polymaff
    • #4
    • 12th Feb 19, 11:28 AM
    • #4
    • 12th Feb 19, 11:28 AM
    Depends on your benefit income.

    Depends on any other income you may have.

    Depends if the savings accounts are ISAs.

    You are allowed to allocate your Personal Allowance among your various types of income as you see fit*. This will affect whether you use your other allowances - including your (could be 1,000) Personal Savings Allowance.

    *If you use self-assessment HMRC will do this for you.
    Last edited by polymaff; 12-02-2019 at 11:41 AM.
    • xylophone
    • By xylophone 12th Feb 19, 11:49 AM
    • 29,218 Posts
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    xylophone
    • #5
    • 12th Feb 19, 11:49 AM
    • #5
    • 12th Feb 19, 11:49 AM
    You need to consider your non savings income and your savings income when calculating how much of your interest can be tax free.

    Download the Savings and Dividends fact sheet here

    https://www.litrg.org.uk/tax-guides/other-tax-issues/savings-and-tax
    • Banger696
    • By Banger696 12th Feb 19, 2:06 PM
    • 55 Posts
    • 2 Thanks
    Banger696
    • #6
    • 12th Feb 19, 2:06 PM
    • #6
    • 12th Feb 19, 2:06 PM
    I have the definitive answer from HMRC. As long as it is under my personal allowance of 11k then I shouldnt pay tax on that and the banks should inform HMRC.
    • polymaff
    • By polymaff 12th Feb 19, 2:17 PM
    • 2,684 Posts
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    polymaff
    • #7
    • 12th Feb 19, 2:17 PM
    • #7
    • 12th Feb 19, 2:17 PM
    I have the definitive answer from HMRC. As long as it is under my personal allowance of 11k then I shouldnt pay tax on that and the banks should inform HMRC.
    Originally posted by Banger696

    You know, there's little point in you posting on MSE if you ignore the advice you are given.


    Believe it or not, you'll get more accurate advice on income tax from folk on here than you will from HMRC - even if you've asked them the right question.
    • Dazed and confused
    • By Dazed and confused 12th Feb 19, 9:15 PM
    • 4,547 Posts
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    Dazed and confused
    • #8
    • 12th Feb 19, 9:15 PM
    • #8
    • 12th Feb 19, 9:15 PM
    I have the definitive answer from HMRC. As long as it is under my personal allowance of 11k then I shouldnt pay tax on that and the banks should inform HMRC.
    Banks don't deduct tax from interest anymore, even if you were liable to pay 46% tax on it.

    Whilst it is true that you would have no tax to pay on the interest if your total taxable income was less than your Personal Allowance (currently 11,850 unless you have applied for Marriage Allowance) it is equally true that you could have income of 17,850 and still not have any tax to pay because of the two 0% tax rates currently in place.

    In your second post you refer to 1000. Presumably a reference to the so called Personal Savings Allowance. Did HMRC advise you that you are not able to benefit from this as you have insufficient income?
    Last edited by Dazed and confused; 12-02-2019 at 9:24 PM.
    • Banger696
    • By Banger696 12th Feb 19, 11:47 PM
    • 55 Posts
    • 2 Thanks
    Banger696
    • #9
    • 12th Feb 19, 11:47 PM
    • #9
    • 12th Feb 19, 11:47 PM
    My word were what about the PA on Savings as I will have 1500 on one savings interest, he said it doesnt matter as it all comes under the 11,850 which I will be well under.
    • short butt sweet
    • By short butt sweet 13th Feb 19, 1:10 AM
    • 304 Posts
    • 252 Thanks
    short butt sweet
    so long as your total taxable income (contribution based ESA + savings interest + anything else) in the tax year is under the PA, you don't pay any income tax.

    even if the total is over PA, you still might pay nothing - though that's more complicated. but if it's definitely under the PA, we can skip that bit (unless you're interested).
    • davidwatts
    • By davidwatts 14th Feb 19, 2:09 PM
    • 187 Posts
    • 141 Thanks
    davidwatts
    I'm interested!

    If my only taxable incomes are money I choose to draw down from my pension plus savings interest how much interest can I earn tax free if I choose to take my tax allowance (11,850) from my pension pot?

    Put another way, am I correct in thinking I wouldn't pay tax if I took that amount from my pension and earned less than 5k in interest?
    • polymaff
    • By polymaff 14th Feb 19, 2:18 PM
    • 2,684 Posts
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    polymaff
    If you only draw your personal allowance in pension payments then you've got the first 6,000 of taxable savings interest taxed at 0%


    Incidentally, "taxed at 0%", not tax-free.
    Last edited by polymaff; 14-02-2019 at 2:26 PM.
    • davidwatts
    • By davidwatts 14th Feb 19, 2:25 PM
    • 187 Posts
    • 141 Thanks
    davidwatts
    Thanks, that was my understanding but wanted a better informed second opinion!

    As this will be the first taxable amount taken from my pension I'm anticipating paying emergency tax and then having to claim it back. Hopefully that won't be too painful a process.
    • polymaff
    • By polymaff 14th Feb 19, 2:40 PM
    • 2,684 Posts
    • 1,226 Thanks
    polymaff
    Be aware that 5,000 of that 0%-taxed savings income is shoved up to being basic rate-taxed, pound for pound, if your pension/taxable benefits/earnings rises above the PA - an effective tax rate of 40%. I know someone who got caught out like this.

    So, effectively paying higher-rate tax on less than 20k taxable income.

    One of Mr. Osborne's clever ideas.
    Last edited by polymaff; 14-02-2019 at 2:48 PM.
    • Dazed and confused
    • By Dazed and confused 14th Feb 19, 2:47 PM
    • 4,547 Posts
    • 2,339 Thanks
    Dazed and confused
    As this will be the first taxable amount taken from my pension I'm anticipating paying emergency tax and then having to claim it back. Hopefully that won't be too painful a process.
    Any tax deducted will depend on how you choose to take the pension income, if it is 988/month (or less) then the emergency tax code would mean no tax was deducted.

    You don't have to claim it back, HMRC will automatically refunded any excess tax deducted after the end of the relevant tax year.
    • davidwatts
    • By davidwatts 14th Feb 19, 2:51 PM
    • 187 Posts
    • 141 Thanks
    davidwatts
    Thanks, had to read that a couple of times but think I get it. So, if I earned 1k over my tax allowance (e.g. pension income) I'd pay 20% tax on that and 1k of my savings would become taxable as well (assuming I was using the full 6k allowance)?
    • davidwatts
    • By davidwatts 14th Feb 19, 2:54 PM
    • 187 Posts
    • 141 Thanks
    davidwatts
    Any tax deducted will depend on how you choose to take the pension income, if it is 988/month (or less) then the emergency tax code would mean no tax was deducted.

    You don't have to claim it back, HMRC will automatically refunded any excess tax deducted after the end of the relevant tax year.
    Originally posted by Dazed and confused
    What if I take it more or less now, as a single lump sum, it being my first and only taxable income this year?
    • polymaff
    • By polymaff 14th Feb 19, 2:55 PM
    • 2,684 Posts
    • 1,226 Thanks
    polymaff
    Thanks, had to read that a couple of times but think I get it. So, if I earned 1k over my tax allowance (e.g. pension income) I'd pay 20% tax on that and 1k of my savings would become taxable as well (assuming I was using the full 6k allowance)?
    Originally posted by davidwatts

    If it'd help to see this in a more graphical manner, have a look at this:


    https://forums.moneysavingexpert.com/showpost.php?p=75460038&postcount=8
    • Dazed and confused
    • By Dazed and confused 14th Feb 19, 3:00 PM
    • 4,547 Posts
    • 2,339 Thanks
    Dazed and confused
    The first payment is usually the prompt for HMRC to issue an accurate, usually cumulative, tax code so subsequent payments would be taxed accurately based on the amount and point in the tax year the payment is taken.

    You should get a tax code notice when HMRC have done this.
    • davidwatts
    • By davidwatts 4th Mar 19, 1:09 PM
    • 187 Posts
    • 141 Thanks
    davidwatts
    If you only draw your personal allowance in pension payments then you've got the first 6,000 of taxable savings interest taxed at 0%


    Incidentally, "taxed at 0%", not tax-free.
    Originally posted by polymaff
    Just revisiting this as I'm looking at fixed term savings account rates now. Would appreciate confirmation or correction on the following points if possible.

    If taxable savings interest exceeds 6k then I'd need to reduce the amount drawn from my pension by the corresponding amount to avoid paying tax, e.g. if it was 6,500 and I drew no more than 12,000 (in 19/20 tax year) then the interest would still be taxed at 0%.

    For fixed term savings longer than 12 months, if the interest is added on maturity then all of it will be classed as income in that year.

    Less obviously, this will also be the case if the interest is credited to the account annually but only becomes available to me on maturity, i.e. I have no access to any of the money until the end of the term.

    The above being of relevance to the optimum way of receiving the interest and the amount that can be drawn from the pension before being liable for income tax.
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