Hello,
I'm struggling to work out what will happen at the end of this tax year with the following situation (all figures per annum):
- Income from earnings: £5,000
- Interest on savings: £9,000
- Pension contributions into a SIPP paid from income (i.e. not taken at source): £3000
Specifically, I'm trying to understand the treatment of interest on savings. As far as I understand it:
- The £5,000 starting rate on savings applies as income from earnings is below £12,570.
- The £1,000 PSA then applies for the same reason.
- So it's now £6,000 of interest from savings that doesn't attract tax.
- The remaining £3,000 would then attract interest at the 'normal tax rate'.
- My understanding is that this would then be treated as effectively income from earnings and, as the £5,000 + £3,000 would still be less than £12,570, no tax would be due. In other words, the 'normal rate' would still be 0% as the £12,570 threshold hasn't been reached.
Is that correct? And could I generalise that to stating that providing income from earnings + interest from savings totalled less than £17,570, no tax would be due until this threshold had been crossed?
I'm then further assuming that the pension contributions would increase that number further i.e. the total could be £20,570 i.e. income from earnings + interest from savings could be up to £20,570 before any tax was due provided £3,000 was contributed to a private pension from earnings. Is that correct?
Many thanks in advance - I'd like to be able to help explain this to the family member to whom this applies as clearly as possible, so very grateful for confirmation on the part before considering the pension contributions, and then, separately, whether I've got the pension contributions part correct as well.
