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40% Tax on Savings Interest - Query
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JBC_2
Posts: 15 Forumite
in Cutting tax
Because I was made redundant in June 2009 my redundancy pay and my earnings YTD have pushed me into the 40% tax bracket for this year (only).
If I open a savings account now with my redundancy pay-out, will I be liable for 40% tax on the interest I receive even if the interest from the account is payable annually - in this case September 2010 ?
Many thanks
If I open a savings account now with my redundancy pay-out, will I be liable for 40% tax on the interest I receive even if the interest from the account is payable annually - in this case September 2010 ?
Many thanks
0
Comments
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You are liable for tax on interest in the tax year in which the interest is actually paid to you/into the account, not when it accrues.0
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You pay tax on the interest in the year that you receive it.
You will receive a statement from your bank at the end of each tax year (April) saying what your interest is for that year, and how much tax has been paid. If you are in the 40% bracket for that year, you have to fill in a self-assessment form and pay the difference.
So if you put into an account that pays interest annually, then the interest won't show up until next year. Similarly, if you put some of the money into an ISA that is tax free, and so will not be an issue.
However, do be aware that the first £30,000 of redundancy/severance money is tax free anyway, so it is only any amount over £30,000 that will be taken into account when deciding if you have dropped into the 40% bracket.I'm a retired employment solicitor. Hopefully some of my comments might be useful, but they are only my opinion and not intended as legal advice.0 -
zzzLazyDaisy wrote: »However, do be aware that the first £30,000 of redundancy/severance money is tax free anyway
Not always - the "redundancy pay" can, and often does, include elements which remain fully taxable and not exempt. In particular, any part which is a contractual entitlement or cutomary will probably remain taxable. So if the lump sum includes holiday pay, bonuses, back pay, etc, those elements are taxable. It is only the non obligatory elements that are tax free, i.e. a lump sum compensation payment for the redundancy on top of their other contractual obligations.0 -
Not always - the "redundancy pay" can, and often does, include elements which remain fully taxable and not exempt. In particular, any part which is a contractual entitlement or cutomary will probably remain taxable. So if the lump sum includes holiday pay, bonuses, back pay, etc, those elements are taxable. It is only the non obligatory elements that are tax free, i.e. a lump sum compensation payment for the redundancy on top of their other contractual obligations.
Hi, yes you are absolutely right. When I said Redundancy Pay or Severance Pay, I meant the element that is the 'compensation' if you like, for losing your job.
Anything that is paid through the payroll in the normal way, such as final salary, holiday pay, notice pay paid while working or on garden leave, or subject to a payment in lieu of notice clause, will all show on your P45, and will count towards your over-all earnings for that year.
It is just any statutory or discretionary enhanced redundancy package and/or any additional non-contractual severance payments that are paid over and above your normal earnings/contractual entitlement that fall within the £30,000 exemption.I'm a retired employment solicitor. Hopefully some of my comments might be useful, but they are only my opinion and not intended as legal advice.0
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