Tax Free Interest On Savings

metalhead_2

Hi,

Just wondering if my other half can register for tax free interest on her savings. She gave up work two years ago, so doesn't pay tax, however her mother died 6 months ago and left her £500000. As the interest on this will be at least £25K per year is she eligible for tax free interest or does her interest count as income and therefore make her a basic rate taxpayer?

Any help much appreciated.

CLAPTON

no she can't receive the interest tax free... the limit is 6,035 per annum.

tiptoe_mouse

Her interest will count as income and make her a taxpayer. However, everyone has a personal allowance of £6035 (this tax year) before they start paying tax. So she will end up paying too much tax as all her interest will be taxed at 20%. At the end of each tax year she will need to fill in form R40 from HMRC - see here:

http://search2.hmrc.gov.uk/kbroker/hmrc/forms/viewform.jsp?formId=818

She should be due a tax refund of £1207 each year, rising as the personal allowance rises.

Of course, any money in a cash ISA receives interest tax free.

tiptoe

metalhead_2

:T Thanks very much to you both.