Budget 2026. 20% & 24% contribution to allowance

[Tegriffic]

So Healey's put savings interest at 24% for basic rate tax payer. How will that work in relation to the £12,570 allowance if both are contributing ?
For example of your income was £10,000 and your savings interest was £10,000 do we assume each burns 50% of the allowance and so for taxable balance above allowance the tax rate is pro-rated or do we assume income burns out the first 10,000 and savings rate applies to the taxable balance ?

Anyone see anything explaining how that will work ?

[macron]

Err the other threads on it meaning you really didn't need to start this one?

https://www.pistonheads.com/gassing/topic.asp?h=0&...

[PushedDover]

macron said:

Err the other threads on it meaning you really didn't need to start this one?

https://www.pistonheads.com/gassing/topic.asp?h=0&...

Err linky says:

[Tegriffic]

macron said:

Err the other threads on it meaning you really didn't need to start this one?

https://www.pistonheads.com/gassing/topic.asp?h=0&...

I assume you meant this thread - 'Budget 28/10/26 - how painful?' - I looked at that but couldn't see anything about allowance erosion specifically - any idea what page on that thread it is ?
Thanks.

Edited by Tegriffic on Wednesday 28th October 17:48

[trickywoo]

The government tax guidelines have always been that joint account interest is taxed 50:50.

[WayOutWest]

Tegriffic said:

So Healey's put savings interest at 24% for basic rate tax payer. How will that work in relation to the £12,570 allowance if both are contributing ?
For example of your income was £10,000 and your savings interest was £10,000 do we assume each burns 50% of the allowance and so for taxable balance above allowance the tax rate is pro-rated or do we assume income burns out the first 10,000 and savings rate applies to the taxable balance ?

Anyone see anything explaining how that will work ?

Your earned income uses your standard Personal Allowance first.
If your earned income is £12,570 or less, any unused portion of your Personal Allowance can be used to cover savings income.

I was going to say in your specific example you would pay 24% tax on £6430 of savings interest (e.g. £7430 - the £1000 savings tax free allowance for basic rate taxpayers) - however I've just been reminded of something called the Starting Rate for Savings that virtually nobody has ever heard of.

Example here based on current tax year obvs:



So next tax year would be Total Tax Owed: 24% of £1,430 = £343.20


It's just another reminder to make maximum use of ISAs. We have a tax regime now where as long as you stick to owning just your own home (pref no more than council tax band D, and certainly not a mansion!), a pension pot of up to £1 million and everything else stuffed into ISAs there isn't too much to worry about as you will be under the radar of the government and HMRC. But God forbid you go outside of those boundaries, you're gonna be fleeced.

Edited by WayOutWest on Wednesday 28th October 18:36

[Tegriffic]

Thank you. I was struggling to find it in the Gov website but thinking about how the savings starting allowance works I guess that has some logic.

[leef44]

WayOutWest said:

Your earned income uses your standard Personal Allowance first.
If your earned income is £12,570 or less, any unused portion of your Personal Allowance can be used to cover savings income.

I was going to say in your specific example you would pay 24% tax on £6430 of savings interest (e.g. £7430 - the £1000 savings tax free allowance for basic rate taxpayers) - however I've just been reminded of something called the Starting Rate for Savings that virtually nobody has ever heard of.

Example here based on current tax year obvs:



So next tax year would be Total Tax Owed: 24% of £1,430 = £343.20


It's just another reminder to make maximum use of ISAs. We have a tax regime now where as long as you stick to owning just your own home (pref no more than council tax band D, and certainly not a mansion!), a pension pot of up to £1 million and everything else stuffed into ISAs there isn't too much to worry about as you will be under the radar of the government and HMRC. But God forbid you go outside of those boundaries, you're gonna be fleeced.

Edited by WayOutWest on Wednesday 28th October 18:36

This doesn't look right. The starter allowance of £5000 is tapered for every pound above £12570 so by £17570, it tapers down to zero. So with a total income of £20k you don't get any starter allowance. The rest is correct.

I'm caught out trying to sort out my OH income because next year she will get £8k pension so £2k is 25% tax free but the other £6k uses up her allowance.

If she has £3k interest income and £4k dividend income then the rest of her personal allowance is first eaten up by the £3k interest income then the dividend income. Luckily with the £500 dividend allowance she doesn't pay tax (12570 - 6000 - 3000 - 3500). But note how her interest allowance and starter allowance doesn't even come into play in this scenario because the PA gets used first.

[WayOutWest]

leef44 said:

This doesn't look right. The starter allowance of £5000 is tapered for every pound above £12570 so by £17570, it tapers down to zero. So with a total income of £20k you don't get any starter allowance. The rest is correct.

The AI response might be wrong but it specifically says "earned income" not overall/combined income.

I checked again and earned income refers to wages, salary, or pension - and excludes savings interest.

[ChrisH72]

My wife asked me a similar question yesterday. She has income through self employment which is taxed at 20% but also from her rental property which will be taxed at 24%. My guess is that the personal allowance will count towards her income earned from employment and all the rental income will be taxed. It's not very clear though.

£10k savings interest would require over £200k sitting in regular savings accounts. If I were in that position I'd be doing everything possible to move that money elsewhere.