Avoiding 40% tax on interest if wife not earning?

lohr500

A very basic question but is there any reason why we couldn't open a high interest regular savings a/c in my wife's name, making monthly payments from our joint a/c, and enjoy tax free interest?
I pay tax at 40% but my wife doesn't work.

Thanks

dzug1

Well the only reason why not is one of semantics. 'We' cannot open an account in your wife's name - only she can do that. Once it's in her account the money is unconditionally hers - so if she runs off with it, tough.

But yes, a perfectly legitimate thing to do.

Bernie

Just make sure you have a heavy duty chain fixed to the sink!

lohr500

Thanks for the quick replies chaps.
Apologies for my poor use of the English language!

Already tried a chain round the kitchen sink, but it caused a serious flood when she last did a runner. Since fitting the leg irons though, control has been restored

Mikeyorks

The term 'high interest' is a bit relative at the moment .... as my Halifax 12% Regular Saver comes to an end in June? So wouldn't you be better putting some of your other savings in her name as, after all, the total amount of interest (and therefore the tax saved) on a RS is relatively small.

lohr500

Hi Mikeyorks,

Yes, will deposit the balance from some inheritance in other a/cs in wife's name to minimise tax.

Can you advise banks/building societies that you want the gross interest without tax deduction, or is it a case of filling out a tax form at year end to claim back the tax deducted?

RayWolfe

There is a Revenue form, R85. Give one to each savings provider that you use. They will have the forms or the Revenue or you can download them.

trevormax

also you could each start up an isa as the interest earned will be tax free.

Mikeyorks

lohr500 wrote: »

Can you advise banks/building societies that you want the gross interest without tax deduction, or is it a case of filling out a tax form at year end to claim back the tax deducted?

As Ray says ... yes, you can file for gross interest to be paid directly. With some Banks you need to file an R85 ..... with others you just ring them - and they write to you advising what you've signed up to (eg Halifax).

lohr500

Thanks again for the info.
We have both already fully loaded cash ISAs for this year and last.

Came into some inheritance recently and plan to pay off the mortgage early then meet again with FA to plan longer term strategy.
Woeful endowments mature in 20011/12/13 and we have already had compensation on all three of these.

For cautious investors, consensus seems to be that paying off the debt 1st is a good idea.

There will be circa £40k left after paying off the mortgage plus I plan to increase my pension contributions and pay into a regular savings a/c with the money that was going to the monthly mortgage payment. Hence the question about opening such a/c in my wife's name.

laticsforlife

I suspect that if (and its a very big if) HMRC decided to look at your income and savings, and then at your wifes, and saw that you earn it and she gets interest (tax free) then they would suggest you were avoiding YOUR tax liabilities.

Unlikely to ever happen though.