Tax on Savings Interest - Pure Confusion

Big_Pidgeon

Hello all, I'm new and also not a real Paraplanner yet, more exams to go.. So hopefully you don't all smack your heads in unison when you read my question.

I'm having some difficulty getting to grips with the tax calculations within the R03 study text. It's not the method or process that's causing a problem, it's the understanding on what certain allowances truly encompass. I cross checked the Gov Website and this still hasn't helped.

Here's the part I'm hung up on...

Starting Rate for Savings currently £5,000
Personal Savings allowance currently £1,000

Lets ignore that these can be reduced or removed based on your income for now and assume we are looking at someone with £0 Income. What does the Starting Rate for Savings and Personal Savings Allowance actually cover?

The book states: It's Income generated by your savings

Gov website says the same thing, but also lists interest is counted towards this and lists things like Unit Trusts, Investment Trusts etc.

Income from Unit Trusts is both interest and dividend paid usually, so depending on the payment, this would dicate whether you use Starting rate for Savings or Dividend allowance and or both etc. (Although If you ask me I'd say dividends are income generated by your savings so the name they've given this allowance is just stupid...)

I did a chargeable bond (offshore) calculation using TFP a few days ago and it factored in all of the allowances 12,500 + £5,000 + 1,000 for the tax that would be paid to a nil income person.

I get that bond withdrawals fall under income tax rules, but how that falls under an allowance based on interest is beyond me.

On that basis, I would argue that income from your pension counts as income from your savings - but that's not the case as far as I know. Things like GIA's that have no cash element would be covered under CGT and Dividend allowance and you could in theory withdraw the entire amount tax free, as long as you didn't hit a CGT event or whatnot.

Am I therefore right in assuming that the £5,000 allowances boils down to this:

• Interest earned on cash (outside of special wrappers like ISA's) whether bank account or deposit based
• Coupon payments from bonds & gilts
• Chargeable gains from offshore bonds
• Interest from UT's when paid in this way

In my mind, I thought it was an allowance to products that would be taxed under taxable income, but I think I'm just entirely confused with the offshore bond thing. (I know onshore already has 20% paid etc)

I browsed through the forum searching for an answer, but couldn't quite find the substance.

I feel reallt stupid.

Thanks

Pidge

Sean_Fernyhough

• Interest earned on cash (outside of special wrappers like ISA's) whether bank account or deposit based. Taxable interest - so not ISAs or tax free NSI products
• Coupon payments from bonds & gilts
• Chargeable gains from offshore bonds And onshore bonds
• Interest from UT's when paid in this way Whether it is paid away or not. Applies to collectives where more than 60% of the fund assets are interest-bearing