For 2026/27, an individual has trading profits of £25,000 and savings interest of £2,000. How much of the savings interest is taxable at 20% after allowances? Assume the personal allowance is £12,570, the starting rate for savings applies to the first £5,000 of savings income above the personal allowance and non-savings income is above that limit, and the personal savings allowance is £1,000.
Answer and explanation
Correct answer: A. £1,000
- Step 1: Non-savings income above the personal allowance: £25,000 - £12,570 = £12,430, which exceeds the £5,000 limit, so no starting rate is left.
- Step 2: A basic rate taxpayer has a £1,000 personal savings allowance.
- Step 3: Taxable savings income = £2,000 - £1,000 = £1,000, taxed at 20%.
Answer
£1,000.
Why not the others: The starting rate is lost because the other income is above £5,000. The personal savings allowance does apply to interest. The allowance is a fixed amount for a basic rate taxpayer, not a percentage.
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