For the 2026/27 UK tax year, an individual has non-savings income of £14,000 (so £1,430 of it sits above the £12,570 Personal Allowance) and also receives £4,000 of savings interest, with no dividend income. Under HMRC's starting rate for savings rules, how much of the £4,000 savings interest can benefit from the 0% starting rate band, before separately considering the Personal Savings Allowance?
- The full £5,000 starting rate band applies undiminished, because it is only reduced once non-savings income exceeds the £50,270 basic rate threshold, not the Personal Allowance
- None of it, because having any non-savings income above the Personal Allowance removes the starting rate band entirely, leaving only the Personal Savings Allowance available
- The full £4,000 of savings interest qualifies for the starting rate band, since the band is only reduced by savings income itself, not by non-savings income
- £3,570 of the savings interest can benefit from the starting rate band, because the £5,000 band is reduced pound for pound by the £1,430 of non-savings income sitting above the Personal Allowance, before any Personal Savings Allowance is considered separately
Why D? And why not the others?
Correct answer: D. £3,570 of the savings interest can benefit from the starting rate band, because the £5,000 band is reduced pound for pound by the £1,430 of non-savings income sitting above the Personal Allowance, before any Personal Savings Allowance is considered separately
The starting rate for savings offers up to £5,000 of savings interest at 0%, but that £5,000 band is reduced pound for pound by any non-savings income (such as wages or pension income) that sits above the Personal Allowance; here £14,000 of non-savings income exceeds the £12,570 Personal Allowance by £1,430, so the £5,000 band shrinks to £3,570, meaning £3,570 of the £4,000 savings interest can use the starting rate band, with this calculation done separately from, and before, the Personal Savings Allowance is applied to whatever interest is left. The option claiming the band is undiminished until non-savings income reaches £50,270 is wrong because the reduction is measured against the Personal Allowance of £12,570, not the much higher basic rate threshold. The option claiming the band disappears entirely once any non-savings income exceeds the Personal Allowance is wrong because the reduction is pound for pound and gradual, not an all-or-nothing cut-off; the band only reaches zero once non-savings income reaches £17,570. The option claiming savings income itself reduces the band is wrong because it is non-savings income, not the savings interest being assessed, that erodes the starting rate band.
Source: GOV.UK: Tax on savings interest — starting rate for savings