Savings Interest Tax Allowance.

[davebro3]

I think I earned more interest than the tax free £1000 allowance in 22/23 & 23/24 but have yet to receive any calculation/assessment of tax owed from HMRC.

They say the banks will report the interest to HMRC & no self-assessment tax return is required.

Has anyone here been charged tax on their interest?

[Canary42]

"They say the banks..."

I'm not sure who you mean by "they" - is that what HMRC have explicitly stated?. My understanding was that HMRC merely use the bank's info to check the Self Asessment return.

[davebro3]

From HMRC: //You need to register for Self Assessment if your income from savings and investments is over £10,000.//

Been through their questionaire & confirms I don't need to make a return.

[davebro3]

Lloyds Bank //Banks and other financial institutions report all interest to HM Revenue & Customs (HMRC) at the end of each tax year.//

[Canary42]

If you've been through the questionaire and reached that conclusion, then I don't understand your concern.

And yes, I've been charged tax on interest in the past - I've yet to make my 23/24 Self Assessment return.

[davebro3]

My concern is that I may be building up a substantial tax bill due to HMRC laxity.

[bednobs]

hi dave bro.  My mum is in the same position, she got something like £1003.87 interest and is now completely panicking over having to pay tax and how she tells them (my dad used to sort this stuff out but he died last year)  i cant advise her because i will never have enough money to get 1k in interest :)

[barry1010]

As I understand it you are concerned because you know you have to pay tax if your interest is over £1k in a financial year (assuming you already pay tax on income).  

You have received more than £1k interest but the website states you only need to self assess if you exceed £10k interest in a year.

Have I got that right?  You know you should be paying tax but don't need to self-assess so you are worried about how the tax will be collected.

[Canary42]

Yes, I do understand that, from experience. One year they refunded me about £5,000 after I submitted my return, then a few days later sent me a demand for exactly the same amount. I'm not sure how to prevent that sort of occurrence without hiring an expensive accountant.

[barry1010]

Ask online, I have always found them helpful - and fair

https://www.gov.uk/government/organisations/hm-revenue-customs/contact/income-tax-enquiries-for-individuals-pensioners-and-employees

[davebro3]

Spot on barry. I assume when it is eventually charged I will pay via a PAYE coding adjustment. I would have though 22/23 should have been dealt with by now - my estimation (various accounts) is that I was only marginally over the £1000 that year.

[davebro3]

The situation seems ambiguous - I also found this:

//Your bank or building society will tell us how much interest you get at the end of the year if you:

do not complete a Self Assessment tax return

do not get a pension

are not employed

We’ll tell you if you need to pay tax and how to pay it.//

 

[newmodarmy]

The 23/24 ones are still being worked on. They usually aim to work it all out by October (end of October in my experience) so maybe check up in a month from now.

The 22/23 one should have been done. My guess is that they don't alway bother chasing it up if the amount involved is small- so if you were only say £25 over. Mine was  £1010 and they DID pick up on it in 2022/23 because I was a higher rate taxpayer (total income was just over the higher threshold by a few when interest was included) so my savings allowance was reduced to £500 and I was asked for £204 (£40% of £510)-ouch!

Sometimes they ask for a one-off payment, sometimes they adjust your code for next year, and sometimes they let you choose.

[davebro3]

thx NMA - maybe they've let me off for 22/23 🤞

[davebro3]

It's ironic really - I worked in the Inland Revenue many moons ago (of course it's vastly different now). Some of my old friends still call me "Taxman Dave" and assume I can help with any tax matters when in fact I can't.

[newmodarmy]

Yes, my wife was just over and it wasn't picked up.

My guess is that if the interest i s spread over several insitutions they might not pick it all up, and also if the amount of tax due is small- say 20% of £30 they won't bother for £6, just as they have said they are not going to start claiming tax (yet) from pensioners who are only marginally above the £12570 allowance this year.

[miser]

Low earners are allowed up to £5000 extra savings interest. If you earn less than £12570 you get the full £6000 allowance. Each £1 you earn more than the basic tax allowance reduces the amount of extra tax free interest you can get until you earn £18750.

[miser]

Sorry  - £18570

[newmodarmy]

Yes indeed, it's not very well known, and I think it's something that could be removed. I never understood how anyone earning less than £18750 could get £5000 of interest pa as that would mean having savings of over £100,000 (and that's on top of ISA savings). I never understand why chancellors fiddle around with little things like that. 

[THECORBYLOON]

Basically, if your income from earnings and/or interest is not above £18,570 a year, there's no tax to pay.

[miser]

Not so - if your earnings from employment and pensions is less than £12570 you will pay tax on savings income over £6000