A number of UK pensioners are facing confusion and potential overpayment of taxes due to adjustments made to their tax codes concerning savings interest. Many individuals, who earn less than £1,000 annually from their savings, report deductions for untaxed interest, which they believe contradicts their entitlement to the Personal Savings Allowance (PSA).
The PSA allows basic rate taxpayers to earn up to £1,000 in savings interest tax-free each year, with higher rate taxpayers entitled to £500 and additional rate taxpayers receiving none. However, some pensioners, receiving only company pensions and well within their standard tax-free income threshold, have found their tax codes altered, leading to unexpected tax liabilities.
One individual, who receives £7,000 a year in company pensions, stated that both she and her husband had deductions made to their tax codes for untaxed interest, despite their total savings interest being less than the £1,000 PSA. While the adjustment did not affect her own tax bill due to her low overall income, her husband, who also has savings interest below the allowance, was incorrectly made to pay a small amount of tax.
When contacted by This Is Money, HM Revenue and Customs (HMRC) explained that in the husband's case, his taxable income for the year, apart from his savings interest, turned out to be higher than initially forecast. Had HMRC predicted this correctly, the PSA would have been included in his coding notice, and no tax would have been deducted. HMRC confirmed that the situation should resolve itself by the end of the tax year, with the husband due to receive a refund for any tax overpaid. An HMRC spokesperson stated that tax codes are updated based on the most recent data available and that they have apologized to the reader's husband and updated his tax code, ensuring he will receive a refund for any overpaid tax.