Higher Rate Taxpayers

james_peter777

Simple Question:
My wife and I are both taxpayers. One is at a higher rate than the other.If you open a joint account such as ICIC Hi Interest account are you taxed at the higher rate taxpayer? :beer:

wonka

I think your account will be taxed as a normal tax payer.

However, if you fill in a tax return, I believe your half of the interest earned should be declared, and therefore taxed at 40%.

moneytroll

you could register the account in the name of the person who pays less tax and transfer the savings to that account to be sure (sorry, i know it doesn't quite answer your question...but that might be a better method to avoid confusion with ICIC - they have a rather inconsistent customer service...).

incidentally, does anyone know if you can open more than one account per person with them? (eg like in ING?)

Andy_Davies

The interest is divided equally between the number of account holders and then each of the account holders is taxed on their share.

So...

For a non tax payer fill in an R85 and their interest will be paid gross

For a basic rate tax payer there's nothing to do

For a higher rate tax payer, declare their share of the interest and the tax paid on that interest on their tax return.

Oompa_Lumpa

As an associated question, if I am a higher rate tax payer, but my wife isn't - am I entitled to transfer say £20k savings into her name, and so save on tax.

I would presume that is an acceptable method of tax avoidance, rather than evasion?

moneytroll

yes, it's tax avoidance, not evasion. it will come down to the question whether you trust your wife :-)

Oompa_Lumpa

Ok next question - my savings account is with Cahoot, but bearing in mind their forthcoming rate cut, should I open a Cahoot account for her or should I look at some of the alternatives. If yes - which one?

Or is it the case that there is no point rate chasing as the chances are that the rate of your new provider is likely to decrease in the near future as well (given the current environment)?

moneytroll

ICIC Hisave has highest rate at the moment. cahoot vary their rates quite a bit in my experience. I wouldn't "chase" rates if it's just a quarter/half point difference but if you are opening a new account you might as well open the one which offers the highest rate right now.

Chrismaths

PrevRate = The NET rate you are getting currently (use the gross rate and multiply by 0.8 if you pay BR tax, 0.6 for HR tax)
NewRate = The NET rate you would get from your new account
Days = Number of days that your money is in transit between providers. In the best case, this will be 3 (direct BACS transfer at beginning of week), but if you have to transfer to your current account and then out again, you are looking at 6 working days (ie at least 8 real days).

Formula:
PrevRate*Days/(NewRate-PrevRate)

This calculates how many days you will have to keep your account to break-even on the interest you lost by moving the money.

Example:
PrevRate: (ING account, BR tax) = 4.41%*0.8 = 3.528%
NewRate: (ICICI account) = 5.03%*0.8 = 4.024%
Days: 8 (3 working to current account, 3 working to new account, 2 weekend days)

3.528%*8/(4.024%-3.528%) = 58 days to recoup interest lost.

Hope this is useful to someone, Chris