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Becoming a taxpayer
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newsmonkey
Posts: 201 Forumite
The cash that doesn't fit in my ISA is currently sitting in an e-savings account paying gross interest.
This online account pays interest on anniversary (ie: November for me).
If I became a UK taxpayer before then and cancelled my gross option before November, would I sacrifice the extra interest for the whole year, or would it be calculatd pro-rata (eg: 11mths gross + 1mth net)?
This online account pays interest on anniversary (ie: November for me).
If I became a UK taxpayer before then and cancelled my gross option before November, would I sacrifice the extra interest for the whole year, or would it be calculatd pro-rata (eg: 11mths gross + 1mth net)?
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Your tax allowance is for the whole of the tax year so it doesn't matter when you get paid interest. If you become a taxpayer before November you would need to cancel your gross registration and you'd be taxed on all the interest paid to you. If you became a taxpayer after you've been paid the interest, but before the end of the tax year in April, you'd have to inform the bank who will either take the tax due from the interest you've already been paid in the current tax year from your account or will advise you to inform the taxman.0
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newsmonkey wrote:The cash that doesn't fit in my ISA is currently sitting in an e-savings account paying gross interest.
This online account pays interest on anniversary (ie: November for me).
If I became a UK taxpayer before then and cancelled my gross option before November, would I sacrifice the extra interest for the whole year, or would it be calculatd pro-rata (eg: 11mths gross + 1mth net)?
What you do is add your gross income to your gross interest if that is LESS than your tax free allowance then you don't have anything to worry about, just cancel the R85 in the new tax year.
If you do cancel in the current year then YES the whole years interest will be NET ! Though if you cancel after the anniversary you will get the interest GROSS and would need to enter it as such on your self assessment tax return, which will calc any underpaid tax due.0 -
In a similar situation, Mrs Hansi will beome a taxpayer from April 2005 due to her receiving her State Pension. She will be a non taxpayer until 5th April and she has a One Year fixed rate bond with a BS which matures on 31st May this year. Surely she won't have to pay tax on the whole year's interest, will she? I would have thought that only the interest earned between 6th April and 31st may would have to be taxed?0
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Bank and building society interest received is taxed as income of the tax year in which it is received not when it is earned.0
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Yes, she will have to pay tax on the full amount paid on 31 May 2005. Interest is taxed in the year when it is paid, it isn't time apportioned. For instant access acounts, your wife would probably be well advised to close them on 5 April 2005 and then reopen them in order to get the interest credited in a tax year in which she will be a non-taxpayer (as long as the amounts involved make this worthwhile considering the hassle this would involve!). However, for a fixed rate bond this option probably won't be available to her. Alterntively, she may have been better opting for monthly interest payments on the fixed rate bond, if that option was available, although it is too late now unfortunately.
If she only just creeps above the personal allowance, then the next £2k or so is only taxed at 10%, so she may be able to claim part of it back.0 -
Thanks. Following on from that, she also gets a monthly pension of about £60 after having taken a lump sum. The first payment was received last week and the slip shows that the Company deducted tax at the basic rate despite a visit to the local Tax Office in December to let them know that she won't pay tax until April and filling in a form to get a new tax code from April. How do I go about getting this money back? Do I contact the Tax Office or the Company?0
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hansi wrote:In a similar situation, Mrs Hansi will beome a taxpayer from April 2005 due to her receiving her State Pension. She will be a non taxpayer until 5th April and she has a One Year fixed rate bond with a BS which matures on 31st May this year. Surely she won't have to pay tax on the whole year's interest, will she? I would have thought that only the interest earned between 6th April and 31st may would have to be taxed?
Afraid so !
This is what catches people out with these types of bonds especially those that only pay on maturity ! Imagine being hit with 5 years interest in one tax year !
Now if she had, had monthly interest then things would be different0 -
hansi wrote:Thanks. Following on from that, she also gets a monthly pension of about £60 after having taken a lump sum. The first payment was received last week and the slip shows that the Company deducted tax at the basic rate despite a visit to the local Tax Office in December to let them know that she won't pay tax until April and filling in a form to get a new tax code from April. How do I go about getting this money back? Do I contact the Tax Office or the Company?
She should wait till the end of the tax year and either go down or send them a letter listing her gross earnings and amount of tax paid. The pension company is working on a week 1 month 1 basis, still tax on £60 a month ? how do they figure that ? is her tax code BR on the payslips ?0 -
Yes, it says BR on the slip.0
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MJSW wrote:Yes, she will have to pay tax on the full amount paid on 31 May 2005. Interest is taxed in the year when it is paid, it isn't time apportioned. For instant access acounts, your wife would probably be well advised to close them on 5 April 2005 and then reopen them in order to get the interest credited in a tax year in which she will be a non-taxpayer (as long as the amounts involved make this worthwhile considering the hassle this would involve!). However, for a fixed rate bond this option probably won't be available to her. Alterntively, she may have been better opting for monthly interest payments on the fixed rate bond, if that option was available, although it is too late now unfortunately.
If she only just creeps above the personal allowance, then the next £2k or so is only taxed at 10%, so she may be able to claim part of it back.
Actually, I have just discovered that the bond is a three year bond but she has already received gross interest for the first two years and has already withdrawn that, so I assume that she will only pay tax on the interest earned this year. It may be worth looking at the bond to see if it's worth withdrawing before 5th April to avoid paying the tax?0
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