In the latest episode of the Not the Martin Lewis Podcast, the Money Saving Expert tackled tax-related issues, briefing listeners on a range of fan-led questions he and his panel of experts would be addressing.
One “little known” tax he highlighted was the starting rate of tax for savings.
Martin Lewis clarified: “No, it’s not the ‘you can earn £1,000 a year’, there’s another one too,” referring to the £1,000 of interest on savings that Brits can earn each year completely tax-free.
Furthermore, Martin made it clear that it’s also not the personal savings allowance, which currently stands at £12,570 that every Brit can earn in a tax year without paying income tax on it.
“This is for anyone who has relatively low earned income and high interest, effectively you may be able to get up to £18,570 without paying tax on it,” he elaborated.
When Angus from Derby, a fan who had recently retired before reaching the state pension age, called in with his personal dilemma, Martin pointed out that he is in a “sweet spot” to take full advantage of this rate.
Angus confessed that he’d “never heard of” this tax allowance before, leading him to consider whether he should withdraw money from his savings or private pension until his state pension begins.
His current financial position, which includes a modest income, qualifies him for the starting rate for savings, provided his earnings from savings stay below the £18,570 threshold.
The starting rate for savings is specifically designed for individuals with a lower income, who earn under £18,570 annually from both their work and savings.
On the BBC podcast, tax expert Rebecca Benneyworth clarified: “The first £5,000 worth of savings income is subject to the starting rate which is a lovely round number…of zero.”
In an effort to keep things straightforward, the tax specialist pointed out that it’s possible to combine all three tax exemptions available.
Although Martin Lewis initially took a step back to let his panel of experts provide guidance, he eventually interjected to encapsulate the concept: “In the right circumstance, you can earn up to £18,570 if you have the right combination of savings, interest and earnings.”
