Savings Tax Allowance and Personal Tax Allowance

My only income in this (and previous) tax year was my salary and savings account interest (conventional bank savings accounts/regular savers, not shares/bonds etc). My savings are probably around £20k.

I gave up work at the end of Sept and transferred £1250 of my tax allowance to my civil partner.

I earned a salary of £10,940 since April and recently applied for a full tax refund for this year as I won't be returning to work and have no other income (other than savings interest).

On applying online I noticed my Tax Allowance was, as expected £11,250. However, today I logged in and it says my Tax Free amount is £11,076 and clicking on further details it shows a £174 reduction as 'Untaxed interest on savings and investments'.

I am unsure why the amount has reduced to £11,076? Can anyone help.
Thank you

Comments

  • Firstly there is no "allowance" for savings interest.

    There is a 0% tax band commonly, but confusingly, referred to as the Personal Savings Allowance.

    However you would have to have taxable income of at least £16,251 to be able to make use of that in the current tax year.

    Based on what you have posted part of your Personal Allowance is currently being used by the savings interest.

    If your Personal Allowance was fully used by wages/pension etc then the savings starter rate of tax would come into play. This allows upto £5,000 of interest to be taxed at 0%. The £5,000 is reduced pound for pound by any non savings, non dividend income (wages, pension, self employment etc) in excess of your Personal Allowance so if you had taxable wages of say £18,000 you would not be entitled to the savings starter rate of tax.

    Once you have used your Personal Allowance and savings starter rate band (if applicable) then the savings nil rate of of tax, also 0%, becomes available.

    In short you are not entitled to use the "Personal Savings Allowance". As you have no need for it.
  • Thank you for your prompt response....


    Does that mean that HMRC believe I have earned £174 so far this year in savings interest? (or is this based on some other calculation.


    More importantly can I only earn a further £136 interest tax free this year (£11076 allowance - £10940 salary)?
  • Dazed_and_confused
    Dazed_and_confused Posts: 6,458
    Uniform Washer
    Forumite
    edited 13 December 2019 at 12:55PM
    Does that mean that HMRC believe I have earned £174 so far this year in savings interest? (or is this based on some other calculation.

    Highly unlikely, it will just be an estimate based on what they think you received in the previous tax year.
    More importantly can I only earn a further £136 interest tax free this year (£11076 allowance - £10940 salary)?

    Based on your original post any savings income above £310 will be "taxed". But it's only if you have savings income in excess of £6,310 that any tax will actually be payable. For example

    Wages £10,940
    Interest £6,311
    Total Income £17,251
    Less Personal Allowance £11,250
    Income to be taxed £6,001
    £5,000 x 0% (savings starter rate) = £.0.00
    £1,000 x 0% (savings nil rate) = £0.00
    £1 x 20% (savings basic rate) = £0.20

    Total tax due £0.20

    If you are Scottish resident for tax purposes you could probably reduce the tax due to £0.19 :p
  • Thank you once again for clarifying this.
This discussion has been closed.
Meet your Ambassadors

Categories

  • All Categories
  • 342.5K Banking & Borrowing
  • 249.9K Reduce Debt & Boost Income
  • 449.4K Spending & Discounts
  • 234.6K Work, Benefits & Business
  • 607.1K Mortgages, Homes & Bills
  • 172.8K Life & Family
  • 247.4K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.8K Discuss & Feedback
  • 15.1K Coronavirus Support Boards