Personal Savings Allowance - edge case clarification

Hello, I'm trying to calculate the appropriate amount to contribute to my personal pension in 23/24 in order to avoid slipping from the £1,000 personal savings allowance (PSA) afforded to basic rate tax payers, to the £500 allowance given to higher rate payers. The guidance on the PSA provided on the HMRC site states that "to work out your tax band, add all the interest you’ve received to your other income". For the purpose of avoiding ambiguity I'd like to provide a couple of examples to test whether my understanding is correct. Example 1 Taxable income excluding savings interest: £49,320 Taxable interest from savings : £950 Total taxable income : £50,270 Deduct personal allowance : (£12,570) Taxable income after personal allowance : £37,700 Therefore tax band = basic rate 20% Qualify for PSA of £1,000 Taxable amount after PSA = £36,700 Tax @ 20% = £7,340 Example 2 Taxable income excluding savings interest: £49,321 Taxable interest from savings : £950 Total taxable income : £50,271 Deduct personal allowance : (£12,570) Taxable income after personal allowance : £37,701 Therefore tax band = basic rate 40% Qualify for PSA of £500 Taxable amount after PSA = £37,201 Tax @ 20% = £7,440.20 Is my understanding here correct? Thanks!

Hi,

HMRC cannot tell you how much to pay into your pension scheme.

You may wish to seek professional advice.

Thank you.

Hi HMRC Admin 2, I'm sorry but, with respect, that's a completely unacceptable response. I'm not asking you for advice on how much I should pay into my pension scheme, I'm asking you about the mechanics of the personal savings allowance. Please could you confirm whether my understanding of the mechanics is correct based on the examples provided. I realised shortly after posting that I'd made a small error in Example 1, so here are the examples again, this time with a minor correction included. Example 1 Taxable income excluding savings interest: £49,320 Taxable interest from savings : £950 Total taxable income : £50,270 Deduct personal allowance : (£12,570) Taxable income after personal allowance : £37,700 Therefore tax band = basic rate 20% Qualify for PSA of £1,000 PSA utilised = £950 Taxable amount after PSA applied = £36,750 Tax @ 20% = £7,350 Example 2 Taxable income excluding savings interest: £49,321 Taxable interest from savings : £950 Total taxable income : £50,271 Deduct personal allowance : (£12,570) Taxable income after personal allowance : £37,701 Therefore tax band = basic rate 40% Qualify for PSA of £500 PSA Utilised : £500 Taxable amount after PSA = £37,201 Tax @ 20% = £7,440.20 Please confirm whether these examples show the correct determination of the personal savings allowance. Thank you

Hi,

Yes the examples woulld be correct. 1st example £1000 personal savings allowance and 2nd example £500 personal savings allowance. 

Thank you.

Hi, I have a follow-up question on the above example. If the example above is modified as below: Taxable income excluding interest : 100 Interest income: 51,300 Total taxable income including interest : 51,310 Deduct: personal allowance -12,570 Subtotal: 38,740 Deduct: starting rate for savings: -5000 Subtotal: 33,740 Deduct: personal savings allowance: 500/1000?? Should I deduct the starting rate for savings before determining the tax band? What should be my tax band? basic or higher? Thank you.

Hi chiyu,
You would be entitled to the £500 Higher Rate Personal Savings Allowance - while you would still be entitled to the full Starting Rate for Savings of £5,000, your total income crosses into the higher rate, so the Personal Savings Allowance changes to £500.
Thank you.

Thank you very much for your reply. Could you please further clarify the following: 1) after deducting the personal saving allowance 500, the remaining 33,240 will be subject to 20% tax, am I correct? 2) you mentioned above that my total income crosses into the higher rate, could you please advise which figure is used to determine my tax band, the total income before any allowance 51,310 or the one after personal allowance 38,740? Thank you very much for your time

Hi chiyu

1. Yes on the untaxed interest this will be taxed at 20%.
2. The figure before the parsonal allowance. 

Thank you