Plan 2 loans: How does ‘unearned income’ affect repayments?
⚠️ Please note that sometimes links from this website will go directly to our main Low Incomes Tax Reform Group’s (LITRG) website.
If you have to fill in a tax return and you get more than £2,000 a year in 'unearned' income, this affects how much you have to repay. Unearned income includes, for example, interest from savings (this is not reduced by the personal savings allowance) or profits from letting out a property (after taking account of the property allowance (links to our LITRG website).
Importantly, the £2,000 is 'all or nothing'. This means that if you get any unearned income of up to £2,000 a year, it is not taken into account at all; but as soon as you go over £2,000, the whole amount is taken into account.
Let's carry on with our example from the previous section:
Example – Emily continued (2)
a) Emily who has a Plan 2 income-based student loan, also has exactly £2,000 interest from her deposit in a savings account, please note the personal savings allowance does not reduce the unearned income when calculating student loan repayments.
→ In her Self Assessment, none of this is taken into account in calculating her student loan repayments. As on the previous page, her 2020/21 loan repayment is still £263.25.
But what happens if Emily finds she has accrued an extra £1 of interest on her current account in 2020/21?
→ In her Self Assessment, the whole £2,001 of unearned income is taken into account in calculating her student loan repayments. So now she will pay an extra 9% x £2,001: £180.09.
When added to the £263.25 above, this makes her total 2020/21 student loan repayment £443.34.