Pay no tax on savings interest even if over £1K (overall income less than £17K)?

[tlf67482]

Can anyone clarify if the following page is correct (not allowed to post links)?

On the gov uk site at government/publications/personal-savings-allowance-factsheet/personal-savings-allowance

This seems to be the latest information but other pages seem to indicate the limit is actually £16.5K and other pages mention there is clawback e.g. every £1 over £11.5K means you loose £1 of this £5K allowance?

For example, if you have pension income of say £13K you can still collect savings interest income worth £4K and pay no tax on this savings interest (not limited to the £1K interest allowance)? The only tax you will pay is income tax on the £1.5K over the annual allowance of £11.5K (£1.5K+£11.5K=£13K) from the pension income?

Will HMRC automatically apply this rule so no need to Self Assess?

Thanks

[chas49]

Can anyone clarify if the following page is correct (not allowed to post links)?

On the gov uk site at government/publications/personal-savings-allowance-factsheet/personal-savings-allowance

This seems to be the latest information but other pages seem to indicate the limit is actually £16.5K and other pages mention there is clawback e.g. every £1 over £11.5K means you loose £1 of this £5K allowance?

For example, if you have pension income of say £13K you can still collect savings interest income worth £4K and pay no tax on this savings interest (not limited to the £1K interest allowance)? The only tax you will pay is income tax on the £1.5K over the annual allowance of £11.5K (£1.5K+£11.5K=£13K) from the pension income?

Will HMRC automatically apply this rule so no need to Self Assess?

Thanks

In your example, the Personal Allowance (£11500) is used up by the pension income. The remaining £1500 of the pension income reduces the Starting Rate for Savings from £5000 to £3500. In your example, the saver has £4K of interest income. The saver also benefits from the Personal Savings Allowance (£1000) so no tax is due on the savings interest, but tax will (as you say) be due on the £1500 of pension no covered by the Personal Allowance.

If you aren't sent a notice to submit a return, you're under no duty to do Self Assessment, but you would need to inform HMRC of any untaxed income. In this example, there isn't any (assuming the pension is taxed correctly) which it should be if it's on PAYE.

[JohnB]

I found the SRS rules very confusing, especially as "non-savings" to me means salary,pension,dividends, but dividend income did not seem to be considered by HMRC. What I ended up doing was doing what-ifs with the SA website to see how the different scenarios worked before committing my return with the actual numbers. As their interpretation was in my favour, I did not query it

[tlf67482]

Thanks for replies so I do not need to register to get this £5K tax free savings rate? It should be done automatically by the tax office? It should be simple and straightforward and just work?

I am moving money from Cash ISAs to normal fixed term & rate savings accounts (monthly interest) due to the interest rate being so much better in accounts outside ISAs?

Apart from the risk that I guess the government could remove both the £1K and £5K allowance whenever they want I am not misinterpreting something here am I?

Thanks

[Alaric]

Apart from the risk that I guess the government could remove both the £1K and £5K allowance whenever they want I am not misinterpreting something here am I?

As a matter of principle, I would have thought it wrong to move money out of a tax shelter even if it does give an extra 1% or so at the moment. At some risk to your capital, there are a lot of investment options that aren't cash, most of which are available through the ISA shelter.

[JohnB]

I'd not take money out of an ISA to search for better interest rates, certainly not multiples of the £20k annual limit. Have you considered an Innovative Finance ISA which uses p2p lending. You should get 7%, though at much greater risk.

[tlf67482]

The risk profile is "none" so anything with a could or should is not really acceptable. The best I have come up with is moving the money from an Cash ISA to a normal savings account as explained even then it is not no risk as the allowances could be removed. Anything is better than the current 0.05% (robbery) the money is currently getting though. If I am honest I am now even more unsure what to do. I have only moved a portion out so far so could stop without any harm. Thanks

[Alaric]

The risk profile is "none" so anything with a could or should is not really acceptable. The best I have come up with is moving the money from an Cash ISA to a normal savings account as explained even then it is not no risk as the allowances could be removed. Anything is better than the current 0.05% (robbery) the money is currently getting though.

Some suggestions from another financial website.

https://www.moneysavingexpert.com/savings/best-cash-isa

That confirms that it's still possible to do better than 0.05% and stay within the ISA shelter.

[CryptoPlankton]

I'd echo the views expressed about moving money out of your ISA's and would definitely suggest you reconsider that strategy. If they are "flexible" ISA's, you would still be able to put any cash back that you've transferred out in this tax year.

[tlf67482]

Thanks for suggestions everyone.

The money I have already moved out of the ISA I am happy to make use of the £1K interest allowance but to hedge my bets I am going to transfer the rest to a better ISA. If things change I will have to take the hit, hope it is not locked away for too long whilst it is being taxed and then just put the money back in an ISA when the money is freed up from the fixed term.

I have to say I am surprised that something is not being done about the massive difference between Cash ISA rates and standard Savings Accounts rates. Why is the ISA rate so much less - the banks are certainly cashing in? An additional 0.5% is a large amount on money if you have been saving in an ISA for many years!