The Lemon Fool

I keep thinking I've got it and then is slips away. Am I right in saying that if your income for this tax year is £12,570, you can earn up to £5000 in savings interest before incurring any tax?

I think so. And the other £1000 too.
https://www.gov.uk/apply-tax-free-inter ... 0will%20be.

Tax is so complicated!

They really should simplify this area. If accountants have difficulty understanding it.

Agree with Kemple - in this example can earn £6k interest tax free.

Thanks. I thought it was just the £1k at first as it is defined as the 'personal savings allowance', but the 'starting rate' effectively ups it to £6k for 0 rate tax payers. Handy.

Fluke wrote:I keep thinking I've got it and then is slips away. Am I right in saying that if your income for this tax year is £12,570, you can earn up to £5000 in savings interest before incurring any tax?

Yes but capital gains are not counted for this purpose. So if your income is £12,570 and you have another £40,000 in realised capital gains, then you can still claim the extra £5,000 interest allowance. You will owe 10% on the gains above the annual CGT-free allowance however.

Lootman wrote:Yes but capital gains are not counted for this purpose. So if your income is £12,570 and you have another £40,000 in realised capital gains, then you can still claim the extra £5,000 interest allowance. You will owe 10% on the gains above the annual CGT-free allowance however.

Good to know, I do have some capital gains to report this year for the first time.

I'm already at or around the £1k mark interest earned for this year but I think armed with this information I'm going to move the premium bond money into a notice savings account at around 5% and add to it the divi cash I've had accumulating in the ISA for ages earning nothing. I was looking at opening a cash ISA but no need now, unless it all changes again in the spring budget that is.

Slightly important to recognise that there is (currently) a £1k Savings Allowance (reduced to £500 for higher rate taxpayers, £0 for additional rate taxpayers), beyond which savings income becomes taxable, however up to the first £5k of taxable savings income is (currently) taxed at 0% - the starting rate. Every £1 of other income above your Personal Allowance (currently £12570) reduces your starting rate for savings by £1.

Currently the Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £125,140 or above.

While there is a £1k (£500, £0) Savings Allowance, there is not a £5k interest "allowance".

Assume Other Income = Personal Allowance.
Interest income £7000.

Is the income tax £1000 x 20%?

bluedonkey wrote:Assume Other Income = Personal Allowance.
Interest income £7000.

Is the income tax £1000 x 20%?

Yes, but do note that in that situation the next £1 of other income is effectively taxed at 40%.

That extra £1 of other income over the personal allowance will be taxed at 20% itself and it will reduce your starting rate allowance by £1, from £5000 to £4999, so the tax on your £7000 interest income will then be £1001 x 20%.

The effective 40% rate will be on all additional other income above the personal allowance until you've depleted the starting rate allowance, i.e. the next £5000.