![\"HMRC](\"https:\/\/www.newsbeep.com\/uk\/wp-content\/uploads\/2026\/03\/6763155.jpg\" "\\"HMRC")
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An HMRC loophole allows you to increase your tax-free allowance to \u00a318,570 (Image: Getty)<\/p>\n
State pensioners could be able to raise their Personal Allowance all the way up to \u00a318,570 with a special savings rule from HMRC.<\/p>\n
Normally, individuals can earn only \u00a312,570 without paying tax on the income and this is known as a Personal Allowance. Frustratingly it’s been locked in at this limit since 2021, and isn’t due to be altered again until 2031, meaning more people will be dragged into paying tax.<\/p>\n
For state pensioners, that’s increasingly been a worry because the state pension<\/a> alone is set to get perilously close to the threshold this April, just \u00a322 below the threshold for new state pensioners on a full National Insurance record. While the government has announced that those who only have the state pension will be exempt from paying tax on the benefit, this won’t be the case for those with any other income, like a private pension or savings interest.<\/p>\n But state pensioners can check if they could earn as much as \u00a318,570 without paying any tax on it with a Personal Allowance savings loophole<\/a> from HMRC<\/a>.<\/p>\n READ MORE: Tax-free allowance increases to bumper \u00a329,330 with HMRC’s 5 rules <\/a><\/p>\n READ MORE: State pensioners can legally avoid stamp duty with little known loophole <\/a><\/p>\n If you earned under \u00a318,570 in a year<\/a>, you could boost your tax-free allowance all the way to that number using a HMRC<\/a> loophole known as the Starting Rate for Savings.<\/p>\n Starting Rate for Savings allows people to add another \u00a35,000 to their tax-free allowance for savings interest income. And many pensioners will have a decent chunk of savings set aside if they have spent their life working.<\/p>\n If you earn less than \u00a312,570 from work or your pension, you can get the full \u00a35,000 allowance, which means you\u2019re allowed to earn up to \u00a35,000 in interest without paying a penny of tax on it.<\/p>\n You can then add another \u00a31,000 on top from the standard Personal Savings Allowance, which means you can earn another \u00a31,000 of savings interest without paying tax on that either, bringing the total to \u00a318,570.<\/p>\n Money expert Martin Lewis<\/a> explains: \u201cIf you earn less than \u00a318,570 a year from earned income and savings combined, then all your interest from those savings could be tax-free.<\/p>\n \u201cThat’s because you get your personal allowance before you start to pay income tax (\u00a312,570), plus the starting rate for savings (up to \u00a35,000) and the personal savings allowance (\u00a31,000) all in combination.\u201d<\/p>\n Those who earn over \u00a312,570 lose \u00a31 of their starting savings rate allowance for every \u00a31 over the threshold.<\/p>\n As Martin Lewis<\/a>\u2019 MSE<\/a> sets out: \u201cCheryl: No income from work, has \u00a320,000 of savings income. In this scenario, Cheryl will need to pay tax of just \u00a3286. As she has no earned income, the savings interest is mostly covered by a combination of allowances:<\/p>\n Starting savings rate \u2013 the next \u00a35,000 is tax-free, so now \u00a317,570 of the interest income is taxed at 0%<\/p>\n Personal savings allowance \u2013 means the next \u00a31,000 is tax-free, so \u00a318,570 is taxed at 0%.<\/p>\n \u201cThis leaves Cheryl with \u00a31,430 of savings income which she will need to pay tax on. As she has no other income, this will be charged at the basic 20% rate, so she’ll pay \u00a3286 in tax.\u201d<\/p>\n HMRC explains: \u201cYou may also get up to \u00a35,000 of interest and not have to pay tax on it. This is your starting rate for savings.<\/p>\n \u201cThe more you earn from other income (for example your wages or pension), the less your starting rate for savings will be.<\/p>\n \u201cYou\u2019re not eligible for the starting rate for savings if your other income is \u00a317,570 or more.<\/p>\n \u201cYour starting rate for savings is a maximum of \u00a35,000. Every \u00a31 of other income above your Personal Allowance reduces your starting rate for savings by \u00a31.\u201d<\/p>\n HMRC gives the example: \u201cYou earn \u00a316,000 of wages and get \u00a3200 interest on your savings.<\/p>\n \u201cYour Personal Allowance is \u00a312,570. It\u2019s used up by the first \u00a312,570 of your wages.<\/p>\n \u201cThe remaining \u00a33,430 of your wages (\u00a316,000 minus \u00a312,570) reduces your starting rate for savings by \u00a33,430.<\/p>\n \u201cYour remaining starting rate for savings is \u00a31,570 (\u00a35,000 minus \u00a33,430). This means you will not have to pay tax on your \u00a3200 savings interest.\u201d<\/p>\n If you already have paid tax on your savings income, you can reclaim it via Self Assessment Tax Return and can backdate your claim for any of the past four years.\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"An HMRC loophole allows you to increase your tax-free allowance to \u00a318,570 (Image: Getty) State pensioners could be…\n","protected":false},"author":2,"featured_media":452824,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[84,4176,163660,2897,86564,4174,4175,163661,56,54,55],"class_list":{"0":"post-452823","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-finance","10":"tag-hmrc-savings-tax-loophole","11":"tag-martin-lewis","12":"tag-personal-allowance","13":"tag-personal-finance","14":"tag-personalfinance","15":"tag-starting-rate-for-savings","16":"tag-uk","17":"tag-united-kingdom","18":"tag-unitedkingdom"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/452823","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=452823"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/452823\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/452824"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=452823"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=452823"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=452823"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}