Tax on savings - no earned income

loofer

Hi,

I'm wanting to earn profit from my savings in the most tax efficient way - after exhausting ISA limits (relatively speaking - not really looking to transfer the money to an account abroad ).

I have savings in an account with a Bank I'm happy with so I'm not looking to change accounts/banks. Just have a question about the tax deducted however. (Additionally, I am basic rate tax payer but may become higer rate in the coming years)

The a/c is solely in my name at the moment and I got married earlier this year. My wife is a housewife. She does not have any income and so does not pay any tax.

My understanding is that if you have income between £1-£2,320, the tax rate for income on savings is 10% http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/DG_4015566

As said above, my wife doesn't earn any income at all so would it be right to assume that she wouldn't have any tax deducted from income savings at all??

If that is the case, what should/could I do? Would the savings account have to be solely in her name to benefit from this assumed tax relief or is it somehow possible to still get the 0% in joint names (it's a fairly substantial amount you see - that's not say I don't trust her :rolleyes: hehe)?

TIA

EDIT: After a bit more searching I've found that my suspicions were correct (even though it was logical anyway so I should have known). If you don't pay any income tax then no tax is deducted from savings income http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnSavingsAndInvestments/DG_4015739
All I need to know now is, how this would be affected with joint account holders where one doesn't pay any income tax and the other pays basic rate income tax.
Thanks

Cozworth806

Simply put the money into an account in your wifes name and complete an R85. The amount of interest can be upto the allowance (c.£5500 or about £78000 @ 7%, or £91500 @ 6%) before tax and then 10% as you mention.

As far as I know if it is joint names and the money comes from your account the tax man may take a dim view, but the norm is 50-50. I think though you can have it split any way you want, so have a word with your bank. (again she will need to complete the R85.)

debbie42

loofer wrote: »

My understanding is that if you have income between £1-£2,320, the tax rate for income on savings is 10% http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/DG_4015566

As said above, my wife doesn't earn any income at all so would it be right to assume that she wouldn't have any tax deducted from income savings at all??

If that is the case, what should/could I do? Would the savings account have to be solely in her name to benefit from this assumed tax relief or is it somehow possible to still get the 0% in joint names

The 10% band range is on top of your personal allowance. So someone earning less than that (£6035) shouldn't pay any tax on savings interest. There's an example here but it uses last year's allowance.

As the previous poster has said, you must fill in an R85 for each savings account that should be paid gross. Very few savings account pay it gross as a default.

If it's a joint account then the tax applied should be 50:50. So if you are a basic rate tax payer, between you that would be 10% tax (i.e. 20% / 2). In practice, although HMRC allow this sort of split, not all banks support it.

loofer

Thanks guys.

I've used a spreadsheet to work out the diffrence in income from gross and net rate on the savings. Over the course of one year (compounded) it comes out at quite a bit.

I shall be putting the account solely on my wife's name now. Call it tax evasion if they want ... what is mine is hers, what is hers is mine;)

Jonbvn

loofer wrote: »

Call it tax evasion if they want ... what is mine is hers, what is hers is mine;)

Tax evasion is illegal. What you (and I) do is called tax avoidance and is perfectly legal.