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Tax on interest: Low income earner
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AnthonyL
Posted: 12 April 2024 08:34:59(UTC)
#1

Joined: 27/07/2010(UTC)
Posts: 182
I'm having a mental block with understanding the tax on interest. I normally do not have to bother about this but I availed myself of the NS&I 6.2% bond which is giving me around £100pcm

My calculations as best I can work out for 2023/24 are:

Personal allowance inc Marriage: £13,830
State Pension: £9,543
I take SIPP to reach my Personal Allowance: £4,287

Starting rate for savings: £5,000
Less £4,287 gives : £713
Plus Personal Savings allowance: £1,000

So max interest before tax is £1,713

Have I got this right? And is 2024/25 the same bar an increase in State Pension?

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D Bergman
Posted: 12 April 2024 08:54:31(UTC)
#2

Joined: 22/03/2018(UTC)
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You should check the HMG website:
Gov.UK income tax rates and personal allowances.

As your income (before the interest is calculated) is within the Personal Allowance, you should have (as I understand it) the full £5,000 + £1,000 in tax-free interest.

My situation was similar last year and HMRC calculated my tax due on this basis in my self-Assessment form.

Edit: when writing “last year” I meant 2022/23.
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AnthonyL on 12/04/2024(UTC), Guest on 12/04/2024(UTC)
Chico99
Posted: 12 April 2024 09:50:18(UTC)
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Guest on 12/04/2024(UTC)
AnthonyL
Posted: 12 April 2024 11:48:29(UTC)
#3

Joined: 27/07/2010(UTC)
Posts: 182
D Bergman;302131 wrote:
You should check the HMG website:
Gov.UK income tax rates and personal allowances.


I did check https://www.gov.uk/apply...ree-interest-on-savings and other websites. As I said I ended up with a mental block. Old age? Whatever. Every time I read an explanation I'd come up with a different answer.

The wording is quite clear, the meaning got lost otherwise I wouldn't have posted.

Quote:
As your income (before the interest is calculated) is within the Personal Allowance, you should have (as I understand it) the full £5,000 + £1,000 in tax-free interest.


Got it now, eventually, and it's not even hard.

Thank you for the clarity of response.
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D Bergman on 12/04/2024(UTC)
D Bergman
Posted: 12 April 2024 15:25:38(UTC)
#5

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It is illuminating how low the effective tax rate can be if you have the possibility to juggle various sources of income.
In 2022/23, HMRC calculated that my tax was approximately £950 on a declarable income of about £44K.

I double checked their figures as I couldn’t quite believe them but they were correct - a total tax rate of about 2%
I had an income comprising state pension, dividends, interest from bonds and capital gains (utilising some capital losses as well).

It won’t happen again because the CGT and dividend allowances have gone down significantly since then, but given that CGT rates are 10% and dividend tax rate are 8.75% (as long as the total income does not exceed basic-rate tax), I still figure that my tax rate will be well below 10%.
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Simon53 on 12/04/2024(UTC), Jay P on 12/04/2024(UTC)
AnthonyL
Posted: 12 April 2024 18:46:15(UTC)
#6

Joined: 27/07/2010(UTC)
Posts: 182
@D Bergman

Fortunately, before my brain fades, my wife and I topped out on ISAs for many years, so all profits, dividends etc out of the grasp of the taxman. Even I can calculate "nothing due".
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D Bergman
Posted: 12 April 2024 19:15:37(UTC)
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AnthonyL;302198 wrote:
@D Bergman

Fortunately, before my brain fades, my wife and I topped out on ISAs for many years, so all profits, dividends etc out of the grasp of the taxman. Even I can calculate "nothing due".



We’ve maximised our ISA contributions, but I still have quite a bit of capital that is not in tax-free wrappers.
So as long as I can keep the tax due to a minimum, it makes sense to draw an income from taxable sources.

Edit: Especially since we have no idea what allowances will disappear and/or tax rates increase!
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Busy doing nothing on 12/04/2024(UTC), ANDREW FOSTER on 13/04/2024(UTC), AnthonyL on 13/04/2024(UTC)
Bryan Bolton
Posted: 13 April 2024 10:53:56(UTC)
#8

Joined: 22/08/2018(UTC)
Posts: 1
Worth checking with HMRC if the £1k personal savings interest allowance is included in, and not additional to, the starting rate of £5k. I've read the HMRC guide several times and I'm not certain one way or the other.
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