Diane Stevens

In this scenario, if your pension is below your personal allowance, you are entitled to the starting rate of savings. Only earned income ( which includes pensions) is taken into account. Savings interest is considered separately . Fir example, if you have a tax code of 12500, pension of £1000 and savings interest of £20000, you are entitled to the starting rate of £5000. So of your £20000, you get £5000 exempt from tax, plus £1000 exemption fi4 your personal savings allowance. As your pension leaves £2,500 spare in your tax code, you are exempt from a further £2500 there. So in this hypothetical situation, your £20000 savings interest is only subject to tax on £11500 ie 20000-5000-1000-2500), at you normal rate (29%) so you’d owe HMRC £2300 in tax on interest received. As your interest recieve dis in excess of £10000, you need to complete a self assessment form, and the tax will fall due the following January in you file electronically.