UFPLS and savings interest

[vfoolish100]

Hi,
Getting myself a bit confused here, hope someone can clarify for me.
Now that savings rates have increased it seems I might need to think about my unsheltered savings interest being taxed, as it may be above £1000.

A UFPLS is taken from my SIPP of £16760, 25% tax free and the remainder to use up my personal allowance.
This is my only income.
How does the calculation work for the starting savings rate (£5000) and savings allowance (£1000).
Is my income taken as £16760 or is the 25% tax free ignored and i can use both allowances?

Thanks for any replies,
Mark

[bluedonkey]

The 25% tax free is definitely ignored. It's simply not counted as part of your income for tax purposes.

[Degsy67]

How does the calculation work for the starting savings rate (£5000) and savings allowance (£1000).
Is my income taken as £16760 or is the 25% tax free ignored and i can use both allowances?

As I understand it, you only get one allowance. It’s either the £5,000 if your taxable income is low and you don’t pay any income tax or this amount reduces down to a floor of £1,0000 if you’re a basic rate tax payer but have income above the personal income tax allowance. The allowance reduces pound for pound between £5,000 and £1,000. You can’t add the two together to get an allowance of £6,000 as your comment above appears to suggest. If you’re taking UFPLS of £16,760 then my interpretation is that you will have a savings interest allowance of £5,000 before you need to worry about tax.

As savings rates are around 4% at the moment, total cash savings above £125k will start to create a tax liability.

Degsy

[swill453]

How does the calculation work for the starting savings rate (£5000) and savings allowance (£1000).
Is my income taken as £16760 or is the 25% tax free ignored and i can use both allowances?

As I understand it, you only get one allowance. It’s either the £5,000 if your taxable income is low and you don’t pay any income tax or this amount reduces down to a floor of £1,0000 if you’re a basic rate tax payer but have income above the personal income tax allowance. The allowance reduces pound for pound between £5,000 and £1,000. You can’t add the two together to get an allowance of £6,000 as your comment above appears to suggest. If you’re taking UFPLS of £16,760 then my interpretation is that you will have a savings interest allowance of £5,000 before you need to worry about tax.

No, I'm pretty sure they are added together.

See https://www.gov.uk/apply-tax-free-interest-on-savings

Your allowances for earning interest before you have to pay tax on it include:

- your Personal Allowance
- starting rate for savings
- Personal Savings Allowance
...
You can use your Personal Allowance
...
You may also get up to £5,000 of interest and not have to pay tax on it. This is your starting rate for savings.
...
You may also get up to £1,000 of interest and not have to pay tax on it, depending on which Income Tax band you’re in. This is your Personal Savings Allowance.

So someone with a taxable income of exactly the Personal Allowance, £12,570, will be able to earn £6000 of interest and still pay no Income Tax.

Scott.

[airbus330]

OP might find this thread helpful
viewtopic.php?f=49&t=37927&p=575150#p575150

[vfoolish100]

Thanks for the replies.
I think i'm happy that the 25% tax free is disregarded and as such, I won't have any savings income subject to tax.

I think the allowances are cumulative too having read this thread https://www.moneysavingexpert.com/savin ... e-savings/ as @airbus330 linked to.

Cheers,
Mark