Confused: Starting rate for savings

[wymii]

Due to a couple of recent life events (inheritance & redundancy) I currently have a large amount of savings that earned around £5k interest in the 2024-25 tax year. My gross income was low, just £15k, as I put a lot of AVCs into my pension. I therefore need to understand the HMRC's "starting rate for savings" rules. I find the example on their website confusing. Is the £200 interest a red herring in the calculation? I can't see where it fits. Can anyone explain how it would work for my figures?

Just put your numbers into their example.
£15k wages plus £5k interest
£12570 personal allowance, then the remaining £2430 of wages reduces your starting rate by £2430.
your remaining starting rate for savings is £2570 so you will pay tax on £1570 of savings interest as all lower rate taxpayers get £1000 tax free.

"so you will pay tax on £1570 of savings interest as all lower rate taxpayers get £1000 tax free."

This is the bit that I don't think is clear in the example, so thank you for putting my numbers in. Bear with me while I reflect it back to you in layman's terms so I can be sure I understand. You are saying that the "starting rate" of £2570 is nominally the taxable amount, but is reduced to £1570 due to the £1000 allowance. Yes?

(Fwiw, I find the phrase "starting rate" confusing because, to me, £2570 is an amount rather than a rate).

@InMySpareTime I've put the HMRC example (example 1) and my understanding of your explanation of my example (example 2) into a spreadsheet and something isn't right. If I follow your explanation, example 1 pays tax on £570, which makes no sense as they only earned £200.

Instead, is it more accurate to say that Example 1's tax free allowance has gone up from the default £1000 to £1570 and Example 2's tax free allowance has gone up from the default £1000 to £2570? Therefore Example 1 would pay no tax, and Example 2 would pay tax on 5000-2570= £2430.

https://www.moneysavingexpert.com/savings/tax-free-savings/

This explains it quite well

MSE always has very wordy explanations. It's a shame he hasn't included a calculator. I'm trying to find one online. (Aviva has one, but you have to put in your account balance and rate, not just the interest earned, which over-complicates it).

They are two separate allowances. Every basic rate taxpayer gets the £1000. The starting rate gives you an additional allowance if your earnings are below £17,570 up to a maximum of £5k (if your earnings are exactly £12,570).
If your earnings do not use up all of your £12,570 personal allowance, you can also use interest to use up personal allowance, in a nutshell, if you had no earnings, you would not need to pay any tax on interest up to £18,570.

You'll have about £290 tax on your interest to pay, op.

Thanks, yes, I think it's £286..I've now managed to get consistent results in a calculator spreadsheet for MSE's examples, HMRC's example and my own example, so I'm happy. It's not intuitive though!

You can earn interest up to £3570, including the £1000 every basic rate tax payer can earn, without paying any tax.

You’d need to pay tax on your remaining £1430 which takes you over your personal limit for the year.

You pay tax at 20% (basic rate). So you need to pay £286 tax.

Have you got any ISAs yet? You can put £20k a year into an ISA and make that bit of your interest non-taxable.