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Personal Savings Allowance: more complex than it seems
Sara G
Posted: 26 November 2022 12:15:09(UTC)
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Some new information (to me at least), and a question...

I learned from comments below a Monevator article that the PSA is more complex than I had thought. Specifically, the headline £1K allowance may be greater for those not earning or taking income from a pension over a certain amount. So if your income is less than £5K above the personal income tax allowance, your savings allowance will be £5K less that excess amount, not £1K.

The above won't apply to me in the current tax year, so I assumed I'd have to register for self assessment in order to pay the tax due on my cash savings, which are greater than normal due to a recent inheritance. When I complete the quiz on the gov.uk website, however, it tells me that if the savings interest is below £10K, then I don't need to do so. Can anyone explain how tax is paid on savings interest that is above £1K but below £10k?

Many thanks in advance. The Monevator article is here:

https://monevator.com/wh...ddenly-important-again/

5 users thanked Sara G for this post.
Raj K on 26/11/2022(UTC), SF100 on 26/11/2022(UTC), Fell Runner on 26/11/2022(UTC), Tim D on 26/11/2022(UTC), Jesse M on 26/11/2022(UTC)
Fife Clive
Posted: 26 November 2022 13:54:46(UTC)
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Sara G;249183 wrote:
When I complete the quiz on the gov.uk website, however, it tells me that if the savings interest is below £10K, then I don't need to do so. Can anyone explain how tax is paid on savings interest that is above £1K but below £10k?

Many thanks in advance. The Monevator article is here:

https://monevator.com/wh...ddenly-important-again/



In this day and age HMRC receive interest payments data directly from all banks, building societies and other such institutions which they apply to your tax record with surprising accuracy - in my wife’s case at least they seem to get it right almost to the penny. In this circumstance they include interest in the annual P800 form they send for the prior year and use that amount to derive her tax code for the current year.

So they will know - the exciting part for people doing self assessment is that they don’t tell you what they know, but they will definitely be comparing what you tell them against what they have on file.

If you want peace of mind there is nothing stopping you phoning them and giving an estimate for the current year, or an actual amount once April 5th has ticked past
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Sara G on 26/11/2022(UTC)
Sara G
Posted: 26 November 2022 14:27:17(UTC)
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Thanks for that, Clive - very helpful.

Good news that I can avoid the excitement of self assessment!

My savings are likely to fluctuate quite wildly over the next couple of years (inheritance / large building project / house sale) but hopefully it will all balance out in the end.

I think I'll definitely take less pension income next year in order to boost the savings allowance and top up with tax free lump sum withdrawals. I'll be handing over large amounts of tax through VAT on the building works, as well as two lots of council tax while the works are going on (not to mention the impact of fiscal drag) so I have no qualms about optimising my affairs as best I can. I just need to ensure I pay enough tax so that the gift aid on my charitable contributions is not impacted. (For those in a similar position, you need to ensure your donations are not more than 4x the amount of income tax + CGT paid; tax on savings doesn't count.)



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Fife Clive on 26/11/2022(UTC), kim shillinglaw on 30/11/2022(UTC)
ANDREW FOSTER
Posted: 26 November 2022 14:53:07(UTC)
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Sara G;249183 wrote:
Some new information (to me at least), and a question...

I learned from comments below a Monevator article that the PSA is more complex than I had thought. Specifically, the headline £1K allowance may be greater for those not earning or taking income from a pension over a certain amount. So if your income is less than £5K above the personal income tax allowance, your savings allowance will be £5K less that excess amount, not £1K.



Yes absolutely right, and I am taking full advantage of this, for as long as it lasts.

It's detailed here on the UK gov website

https://www.gov.uk/apply...ree-interest-on-savings

This has made it very attractive to buy the fixed term bonds that are around now, even outside a wrapper, IF you are only just at the personal income tax threshold (which I have made myself)

It's possible to configure ones' income to use

£12K personal allowance
£5K Savings allowance
£11K CGT allowance
£2K Dividend allowance (cough)

Giving £30K tax free income for retirees. Add a bit of ISA income and it's all good. No wonder the country is screwed...
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Sara G on 26/11/2022(UTC)
Thrugelmir
Posted: 26 November 2022 15:12:42(UTC)
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ANDREW FOSTER;249203 wrote:


Giving £30K tax free income for retirees. Add a bit of ISA income and it's all good. No wonder the country is screwed...


£30k isn't a huge income though. Majority of which is coming from personal savings and therefore reduces dependence on the state. Nor forget that the money spent ends back up in the Treasury. Tax exists everywhere in the economy. Not just the direct taxes you incur personally.
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Sara G on 26/11/2022(UTC)
ANDREW FOSTER
Posted: 26 November 2022 15:23:19(UTC)
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Thrugelmir;249206 wrote:
[quote=ANDREW FOSTER;249203

Giving £30K tax free income for retirees. Add a bit of ISA income and it's all good. No wonder the country is screwed...


£30k isn't a huge income though. Majority of which is coming from personal savings and therefore reduces dependence on the state. Nor forget that the money spent ends back up in the Treasury. Tax exists everywhere in the economy. Not just the direct taxes you incur personally. [/quote]

It's a pretty good income once you have no mortgage, debts and no work/travelling expenses. I traded a more modest lifestyle for early retirement.

I manage very well on this plus some ISA Drawings as and when needed, plus those 25% lump sums from the SIPP. It's amazing what you can do once you can travel on odd days at short notice and devote a bit of time to being miserly (sorry 'economical').
7 users thanked ANDREW FOSTER for this post.
Thrugelmir on 26/11/2022(UTC), SF100 on 26/11/2022(UTC), Sara G on 26/11/2022(UTC), Jimmy Page on 26/11/2022(UTC), Tim D on 26/11/2022(UTC), Martina on 27/11/2022(UTC), kim shillinglaw on 30/11/2022(UTC)
Thrugelmir
Posted: 26 November 2022 15:37:06(UTC)
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ANDREW FOSTER;249209 wrote:
Thrugelmir;249206 wrote:
[quote=ANDREW FOSTER;249203

Giving £30K tax free income for retirees. Add a bit of ISA income and it's all good. No wonder the country is screwed...


£30k isn't a huge income though. Majority of which is coming from personal savings and therefore reduces dependence on the state. Nor forget that the money spent ends back up in the Treasury. Tax exists everywhere in the economy. Not just the direct taxes you incur personally.


It's a pretty good income once you have no mortgage, debts and no work/travelling expenses. I traded a more modest lifestyle for early retirement.

I manage very well on this plus some ISA Drawings as and when needed, plus those 25% lump sums from the SIPP. It's amazing what you can do once you can travel on odd days at short notice and devote a bit of time to being miserly (sorry 'economical').
[/quote]

Lifestyle is a choice. Shame more people aren't like your good self and make sensible personal finance decisions throughout their working lives. Surprising how far your money can go if you avoid the temptation to keep up with the Joneses or feel the need to travel thousands of miles just to lie on a beach.
7 users thanked Thrugelmir for this post.
SF100 on 26/11/2022(UTC), Easyrider on 26/11/2022(UTC), ANDREW FOSTER on 26/11/2022(UTC), Jimmy Page on 26/11/2022(UTC), Tim D on 26/11/2022(UTC), Martina on 27/11/2022(UTC), Guest on 28/11/2022(UTC)
SF100
Posted: 26 November 2022 15:52:27(UTC)
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Joined: 08/02/2020(UTC)
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ANDREW FOSTER;249203 wrote:

It's possible to configure ones' income to use

£12K personal allowance
£5K Savings allowance
£11K CGT allowance
£2K Dividend allowance (cough)

Giving £30K tax free income for retirees. Add a bit of ISA income and it's all good. No wonder the country is screwed...

edit: Sorry, I see you've knocked the gain down to 11k to get the total income rounded to 30k....


CGT allowance is £12300 is it not....

It'd be delightful to make gains of £12300 every year or more often than not
SF100
Posted: 26 November 2022 15:56:38(UTC)
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Joined: 08/02/2020(UTC)
Posts: 2,261

Thrugelmir;249206 wrote:

£30k isn't a huge income though.

Let's revisit this once the DB schemes are done and dusted
ANDREW FOSTER
Posted: 26 November 2022 17:40:48(UTC)
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SF100;249211 wrote:
ANDREW FOSTER;249203 wrote:

It's possible to configure ones' income to use

£12K personal allowance
£5K Savings allowance
£11K CGT allowance
£2K Dividend allowance (cough)

Giving £30K tax free income for retirees. Add a bit of ISA income and it's all good. No wonder the country is screwed...

edit: Sorry, I see you've knocked the gain down to 11k to get the total income rounded to 30k....


CGT allowance is £12300 is it not....

It'd be delightful to make gains of £12300 every year or more often than not


Sorry I was quite out of date on that figure it was £11700 back in 2018.

I certainly won't be using that this year in my GIA as my GIA is almost wound down to zero now.
1 user thanked ANDREW FOSTER for this post.
SF100 on 26/11/2022(UTC)
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