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
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UFPLS and savings interest
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- Lemon Quarter
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Re: UFPLS and savings interest
The 25% tax free is definitely ignored. It's simply not counted as part of your income for tax purposes.
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- 2 Lemon pips
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Re: UFPLS and savings interest
vfoolish100 wrote: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
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- Lemon Half
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Re: UFPLS and savings interest
Degsy67 wrote:vfoolish100 wrote: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.
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- Lemon Slice
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Re: UFPLS and savings interest
OP might find this thread helpful
viewtopic.php?f=49&t=37927&p=575150#p575150
viewtopic.php?f=49&t=37927&p=575150#p575150
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Re: UFPLS and savings interest
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
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
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