chriscross
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Post by chriscross on Nov 24, 2019 16:30:12 GMT
I am sort of hoping there may be a tax specialist or someone with the relevant knowledge that may be able to clarify something for me.
I have decided to start drawing down from one of my pension pots (having already taken the 25% tax free lump sum) to use up my tax-free allowances a few years before I start getting my state pension. As I don’t really want to be paying unnecessary tax on my private pension when the state pension starts taking a big chunk of my tax-free allowances.
My question is regarding the Personal Savings Allowance of £1,000 and whether you are entitled to it if you do not earn enough money to pay tax.
These are the currents relevant HMRC Tax allowances:
Tax Year: 2019/2020
Single Persons Tax Allowance: £12,500
Starting Savings Rate: £5,000
Personal Savings Allowance: £1,000
The facts I do know are that I can earn up to £17,500, which is made up of the £12,500 Single Persons Tax Allowance plus the £5,000 Starting Savings Rate. This is before I have to pay any tax as long as no more than £12,500 is from any form of salary income or taxable pension and the rest is typically savings Interest payments.
What is not clear in any documentation anywhere is whether as a NON-tax payer I am also entitled to the £1,000 Personal Savings Allowance which could allow me to earn up to £18,500 without paying tax.
When the Personal saving allowance is ever mentioned either on HMRC site or other, it always seems to be mentioned in regard to either Basic Rate tax payers (£1,000) or Higher Rate Tax payers (£500) but never in relation to non-tax payers.
I’m sort of hoping someone on here either has that knowledge or may have even fallen into a similar predicament, especially if you are earning a large amount of interest annually (possible from P2P). I can then speak with the fact-finding interpreters on the HMRC helpline. Don’t get me wrong I understand in this day and age we can no longer speak to a true tax specialist at HMRC due to costs. My experience of their helpline though, is that you really need to know the answer to your own question beforehand, then speak with at least three different advisors to hopefully clarify what you already thought you knew. As they take your question, ask you to wait 5 minutes while they read up on it and give you their interpretation of what they have just read, hence sometimes needing multiple responses to eventually get a true perspective.
So, until I know for sure I will err on the side of caution and stick below the £17,500 for now.
A big thank you for any help on this..
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Post by dan1 on Nov 24, 2019 16:48:45 GMT
I'm no expert, there are plenty on here who understand these things better than I.
My understanding.... You are a Basic Rate taxpayer, it's just your income falls within allowances so you don't pay any tax. That means the allowances are additive, £12.5k + £5k + £1k = £18.5k income falls within allowances assuming your earnings from employment do not exceed £12.5k.
It's worth remembering you also have a dividend allowance of £2k. If you maximise all of these and your partner does too then you're looking at £41k income tax free... incredibly generous I would say.
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Post by mrclondon on Nov 24, 2019 17:02:02 GMT
Just to add another voice confirming £18,500 tax free providing taxable earnings/pension is below £12,500
I have a spreadsheet that calculates my tax liability and it matches to the penny what HMRC's self assessment website calculates each year as I do the tax return.
I will be doing something similiar to you with respect to my SIPP once I reach 55 though in my case with the aim to minimise higher rate tax in the later years when final salary pensions and state pension kick in.
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bigfoot12
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Post by bigfoot12 on Nov 24, 2019 17:02:32 GMT
If you are non-tax payer then increasing your allowance won't help you!
I think that if you earned £18,499, then if it wasn't for the £1,000 PSA you would be a basic rate taxpayer.
If you do self assessment, and if you haven't submitted it for 2018/19, and if the numbers you are interested in haven't changed between last year and this year, then you can use the online submission to test these sorts of things. Put in numbers to test and run the calculation - (obviously) DON'T SUBMIT IT!
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chriscross
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Post by chriscross on Nov 25, 2019 0:30:33 GMT
Just to add another voice confirming £18,500 tax free providing taxable earnings/pension is below £12,500
I have a spreadsheet that calculates my tax liability and it matches to the penny what HMRC's self assessment website calculates each year as I do the tax return.
I will be doing something similiar to you with respect to my SIPP once I reach 55 though in my case with the aim to minimise higher rate tax in the later years when final salary pensions and state pension kick in.
Thanks for that info mrclondon. I was lucky enough to be taken off the list of self assesments a few years ago, so I can't go through that process online, and to be honest I certainly don't want to start them again if I can avoid it. I do like the idea of the spreadsheet you mentioned, can I ask if it's a commercial spreadsheet you're talking about?
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Post by mrclondon on Nov 25, 2019 1:43:09 GMT
Just to add another voice confirming £18,500 tax free providing taxable earnings/pension is below £12,500
I have a spreadsheet that calculates my tax liability and it matches to the penny what HMRC's self assessment website calculates each year as I do the tax return.
I will be doing something similiar to you with respect to my SIPP once I reach 55 though in my case with the aim to minimise higher rate tax in the later years when final salary pensions and state pension kick in.
Thanks for that info mrclondon. I was lucky enough to be taken off the list of self assesments a few years ago, so I can't go through that process online, and to be honest I certainly don't want to start them again if I can avoid it. I do like the idea of the spreadsheet you mentioned, can I ask if it's a commercial spreadsheet you're talking about? Its what I've written myself, so no guarantees it is 100% correct, but its served me well. There are a number of limitations, it does not handle additional rate tax (45%), nor does it handle Class 2 / 4 NI contributions (which are part of self assessment). And finally I've never bothered to code the higher rate dividend tax (32.5%) calculation.
If anyone wants a copy (xlsx file) PM me.
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chriscross
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Post by chriscross on Nov 25, 2019 2:52:59 GMT
Thanks for that info mrclondon. I was lucky enough to be taken off the list of self assesments a few years ago, so I can't go through that process online, and to be honest I certainly don't want to start them again if I can avoid it. I do like the idea of the spreadsheet you mentioned, can I ask if it's a commercial spreadsheet you're talking about? Its what I've written myself, so no guarantees it is 100% correct, but its served me well. There are a number of limitations, it does not handle additional rate tax (45%), nor does it handle Class 2 / 4 NI contributions (which are part of self assessment). And finally I've never bothered to code the higher rate dividend tax (32.5%) calculation.
If anyone wants a copy (xlsx file) PM me.
Many thanks for the spreadsheet, it covers everything I need, so glad I asked the question now. What more can I say but you're a star..
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Post by dan1 on Nov 25, 2019 8:19:08 GMT
Just to add another voice confirming £18,500 tax free providing taxable earnings/pension is below £12,500
I have a spreadsheet that calculates my tax liability and it matches to the penny what HMRC's self assessment website calculates each year as I do the tax return.
I will be doing something similiar to you with respect to my SIPP once I reach 55 though in my case with the aim to minimise higher rate tax in the later years when final salary pensions and state pension kick in.
Thanks for that info mrclondon. I was lucky enough to be taken off the list of self assesments a few years ago, so I can't go through that process online, and to be honest I certainly don't want to start them again if I can avoid it. I do like the idea of the spreadsheet you mentioned, can I ask if it's a commercial spreadsheet you're talking about? I believe it's still the case that if you aren't required to submit a self assessment that you need to inform HMRC of P2P earnings by phone/letter. There are a few old threads on this, e.g. p2pindependentforum.com/thread/6871/tax-sorryp2pindependentforum.com/thread/4286/tax-returnp2pindependentforum.com/thread/699/declaring-tax
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Grezza
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Post by Grezza on Nov 25, 2019 8:55:54 GMT
just a note re pension income, make sure your pension provider does not deduct tax via paye (ie, make sure they use your personal tax allowance), especially if you are under HMRC radar and wish to remain so. Otherwise reclaiming overpaid tax will probably mean sticking your head above the parapet.
I am aware that even if you have no tax liability, you are still obliged to submit a return if interest earned is over a certain amount.
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chriscross
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Post by chriscross on Nov 25, 2019 15:46:12 GMT
Oh dear, so it does look as if I may have to start the dreaded self assessments, which I have avoided for a few years now.
I receive taxable interest from 25+ different organisations (Banks, P2P), do you have to itemise each one or is it a single figure entry on the current self assessment?
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Post by mrclondon on Nov 25, 2019 16:09:29 GMT
Oh dear, so it does look as if I may have to start the dreaded self assessments, which I have avoided for a few years now. I receive taxable interest from 25+ different organisations (Banks, P2P), do you have to itemise each one or is it a single figure entry on the current self assessment? Single figure for all interest (banks + p2p etc) ... which is the real purpose of my s/sheet ... to collate/totalise the info from the multiple sources.
Also it fulfills the legal requirement to maintain a record for seven years of how the figures entered onto a tax return were derived.
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Post by dan1 on Nov 25, 2019 16:29:48 GMT
Oh dear, so it does look as if I may have to start the dreaded self assessments, which I have avoided for a few years now. I receive taxable interest from 25+ different organisations (Banks, P2P), do you have to itemise each one or is it a single figure entry on the current self assessment? You won't necessarily have to complete a SA, try this... www.gov.uk/check-if-you-need-tax-returnSome interpretation required regarding £2.5k Vs £10k interest threshold. If not registering for SA then I'd suggest a letter itemising the interest from each institution.
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ilmoro
Member of DD Central
'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on Nov 25, 2019 19:00:21 GMT
Note. P2P interest is entered under other income (same section as OEICs, gilts etc) not bank interest section on SA. One figure for P2P interest- minus any losses being claimed plus any recoveries from previous claimed losses.
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Greenwood2
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Post by Greenwood2 on Nov 26, 2019 7:46:20 GMT
Oh dear, so it does look as if I may have to start the dreaded self assessments, which I have avoided for a few years now. I receive taxable interest from 25+ different organisations (Banks, P2P), do you have to itemise each one or is it a single figure entry on the current self assessment? Single figure for all interest (banks + p2p etc) ... which is the real purpose of my s/sheet ... to collate/totalise the info from the multiple sources.
Also it fulfills the legal requirement to maintain a record for seven years of how the figures entered onto a tax return were derived.
Every year when I look back at the previous year's tax it takes me forever to figure out what I did, even though I put it all in a spreadsheet and understood it at the time. It would be a nightmare to explain seven years of it to HMRC! As said by ilmoro I was slightly chastised by HMRC for putting the P2P income with the savings interest, it should go in the other income, gilts etc. Although they then immediately add them together. Edit: Not quite sure where you should put the 'nearly' P2P income, ie, non compliant lending.
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Post by bernythedolt on Nov 28, 2019 3:36:55 GMT
Oh dear, so it does look as if I may have to start the dreaded self assessments, which I have avoided for a few years now. I receive taxable interest from 25+ different organisations (Banks, P2P), do you have to itemise each one or is it a single figure entry on the current self assessment? Every year, HMRC wildly overestimate my untaxed interest, so I have to gather all the figures and spend 30 minutes on the phone to them agreeing revised figures. It's frankly easier to fill in a self-assessment, but guess what... they won't allow it. I asked this week and they refused me. Same last year. Since kicking most of us off SA, HMRC don't want us back. So the new system, arguing figures in real-time by phone, is way less efficient, but it's what they want. I get the impression we taxpayers can not demand the right to fill in a SA, odd as that seems. I've certainly encountered reluctance and been told no.
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