How do you avoid higher rate tax on savings interest

jem16

Mikeyorks wrote: »

Most of your questions seem to have been answered .... but this bit slipped the net? The answer is 'no'. You can transfer it where you wish - but as you earn the salary, it is that which determines your marginal tax rate - and, thereby, the rate at which your savings (considered to be the top slice of your income) are taxed. The way to mitigate the potential additional tax on your savings interest is fully covered at post #3.

I noticed this bit too and then forgot to answer it.

One other way to get the OP back into basic rate tax is to pay more into a pension.

silentfox

Mikeyorks wrote: »

Most of your questions seem to have been answered .... but this bit slipped the net? The answer is 'no'. You can transfer it where you wish - but as you earn the salary, it is that which determines your marginal tax rate - and, thereby, the rate at which your savings (considered to be the top slice of your income) are taxed. The way to mitigate the potential additional tax on your savings interest is fully covered at post #3.

Not sure what you mean, maybe I wasn't clear... by transferring the money into wifes account, as she is a basic rate tax payer does that not avoid the need to pay higher rate tax on the interest earned on the savings. I understand that I would still need to pay the higher rate on salary but purely on the interest earned on the savings am I correct?

Also thanks to everyone for their replies.

CLAPTON

you earn the money
you pay income tax on it at whatever rate
you give money to your wife
she puts it in a savings account in her name
she pays tax at her tax rate 20%

jem16

silentfox wrote: »

Not sure what you mean, maybe I wasn't clear... by transferring the money into wifes account, as she is a basic rate tax payer does that not avoid the need to pay higher rate tax on the interest earned on the savings. I understand that I would still need to pay the higher rate on salary but purely on the interest earned on the savings am I correct?

You are correct from that point of view.

However I read it, and obviously Mikeyorks too, that you meant transfer your actual salary to your wife - your wording was ambiguous.

If the salary is transferred into the husband/wife account if they are basic rate tax payers does that avoid the need to pay the higher rate?

bryanb

jem16 wrote: »

Milarky was correct - this is not..

If you re-read the first sentence of milarky's post you will realise that he was not correct
It is a fact that the 10% band still exists as you state yourself. Not applicable to the OP but I did not say it was.

jem16

bryanb wrote: »

If you re-read the first sentence of milarky's post you will realise that he was not correct

I think you need to re-read it not me - you are missing one very important word.

Milarky said;

Savings interest is subject to a standard 'withholding' tax of 20% for all taxpayers.

This is correct - all banks automatically deduct 20% from all taxpayers. That is why he states "withholding". Anyone who is fortunate enough to be able to claim the 10% rate must do so via HMRC at the end of the tax year. The bank will not do it.

It is a fact that the 10% band still exists as you state yourself. Not applicable to the OP but I did not say it was.

I didn't say that you did. I merely clarified it for the OP in case he/she thought it might still apply.

bryanb

Jem 16, OK, No point in carrying on with this, My main point was that 10% still exists, perhaps I should have said that and not tried to expand on it.

aspiration_2

CLAPTON wrote: »

you will be liable to 40% tax if your income is over 40,835 for this tax year i.e. 6th april 2008 and 5th april 2009. Income here includes earning, benefits in kind, gross savings income, dividend income but excluded pension payments, ISA interest.

Useful nuggets here.

I was under the impression that Pensions are taxed. could you kindly confirm that pensions need not be declared.

Thanks

jem16

aspiration wrote: »

Useful nuggets here.

I was under the impression that Pensions are taxed. could you kindly confirm that pensions need not be declared.

Thanks

I think Clapton means payments into a pension not pension payments that you would receive.

dzug1

aspiration wrote: »

Useful nuggets here.

I was under the impression that Pensions are taxed. could you kindly confirm that pensions need not be declared.

Thanks

It means pension contributions are excluded when adding up earnings, not that pension payments you receive don't count.