Tax on savings accounts

danip_3

Hi,
I am about to inherit some money which im looking to invest. I am about to enter my last year of University and won't be using the money for atleast a year because of it. Because of this i planned on opening a 1 year fixed rate account but it occured to me that when the interest comes to be payed (around Sept 09) i will no longer be a student and able to be taxed. Will the whole portion of interest be taxed or just the part from when i finish University? Or should i just go for a instant access with interest payed daily/monthly to be safe?
Hopefully somebody will have some info on this!

thanks for you time,
Dan

Rikki

If you are to be tax sooner rather than later your first place to save money is ISA's.

£3,600 tax year 2008/2009 and again in April 2009/2010.

danip_3

thanks for your reply,

I already have an isa, just transferred it from Natwest to Abbey today actually, and is nearly full for this year. After filling the rest with my inheritance i will still have a considerable amount left which im looking to invest. I officially finish Uni in June 2009 if that helps anyone, ive looked on the HM Revenue website but its not very clear and the helpline is closed right now.

Dan

Lokolo

danip wrote: »

thanks for your reply,

I already have an isa, just transferred it from Natwest to Abbey today actually, and is nearly full for this year. After filling the rest with my inheritance i will still have a considerable amount left which im looking to invest. I officially finish Uni in June 2009 if that helps anyone, ive looked on the HM Revenue website but its not very clear and the helpline is closed right now.

Dan

Tax is due when interest is paid. So unfortunately, taking out the year long bond thing you will be taxed on the amount, not for half of it for example. Sorry!

jennifernil

I would open the best instant access or 6 month fixed rate account you can find. The 6 month one will pay out the interest before the end of this tax year.

If you go instant access then close the account just before April 5th 2009 to get the interest in this tax year.

Being a student does not give you any advantages tax wise, you just get the same allowance as everyone else.

If you have had a part time or summer job you may already have earned over your allowance anyway, so check that out. If you have then all your interest, other than ISAs and a few other products, will be taxable.

KiKi

As Rikki says, put £3600 ASAP into an ISA (an Individual Savings Account). It's a tax-free account, and £3600 is the maximum you can put into an ISA each financial year.

So get the first £3600 into an ISA with a good rate (good = more than 6% at the moment).

The rest should go into a savings account. Some fixed rate accounts or bonds will pay more for a fixed rate but, actually, you can get some excellent daily / monthly interest rate accounts. If the amount you're saving isn't all that huge, then it probably won't make much difference.

If you save £5K at a fixed rate of 6.5% APR, that's £325 interest. 20% taxed on that, is £65 off, so that's £260.

To get £260 (untaxed) on monthly interest, you'd need to get a regular savings account of about 5.2% APR.

Now, those are very crude figures. But what I'm saying is that whatever the top rate you find is, you can probably get an account that credits interest monthly to similar effect.

(I'm no expert on tax. But I'm pretty sure that being taxed on the fixed rate is nothing to do with you being at uni or not, but your earnings for the year. So if you earn more than the personal allowance in any one financial year, you will be taxed on the interest of your savings regardless.)

But, personally: take the monthly interest account. That way you can be assured up until you finish uni you're not being taxed on the interest (assuming you're not working enough to pay tax, yet).

HTH
KiKi

danip_3

thanks everyone for your advice

Instant access or 6-month looks the best then, and like you say i have access to that money then to put into next years ISA in april.
I like the look of Kaupthing Edge whether its instant or 6-month i think i will probably end up with them.

thanks for your time again,
Dan

Paul_Herring

danip wrote: »

... i will no longer be a student and able to be taxed.

Ah - one of the myths.

You are able to be taxed as a student now if your income is above your tax free allowance - just because you're a student, doesn't mean you're not liable. It's just that students don't usually earn enough to be liable.

ManAtHome

Or get a fixed-term account that pays interest montlhy - normally the same AER if credited to the account, but moves some of the tax liability into this year.