Non tax payer savings query

daydreamer16

Hi, I gave up my job a month ago but have a small Civil Service pension of £320 per month. My husband and I have sold our house and down-sized so will have a fairly sizeable cheque coming to us soon :-)
Am I right in thinking if we put all of the money in my name I will receive all the interest tax free? I have my fingers crossed!
Thanks a lot.

scottishblondie

Yes, as long as your pension + the interest does not exceed your personal allowance. Fill out R85 forms for each of your savings accounts to get the interest paid gross.

juicyjude

Just keep a note every month of your income between when you finished work, (assuming you paid tax when you were working) and 5th April 2011, if it goes above £6474 if youre under 65 I think, then you will have to de register your accounts and take interest net!

daydreamer16

Hmmm lots to think about! We are now in the same dilemma as many others, namely where to put our money to get the best returns. It seems (we don't want to take any risks at all) that fixed rate bonds are the best bet but the advice seems to be to just tie it up short term in case interest rates rise. Does anyone have any thoughts/advice on this?

Mikeyorks

daydreamer16 wrote: »

Am I right in thinking if we put all of the money in my name I will receive all the interest tax free? I have my fingers crossed!
Thanks a lot.

Only if your income (salary Apr - now / + pension now to April / + gross interest) is less than your personal allowance? Which is £6475 - unless over 65.

If you put the money in a fixed rate product for a year (not monthly interest - or above applies) - then the interest won't be taxable until next year. Your personal allowance will then be at least £7475 - so you will have headroom for the interest of (£7475 - (12 x £320) £3635? So you can file an R85 if the gross interest (assuming no State Pension involved) is less than the £3635.

If the downsizing involves a significant sum ...... consult an IFA (not a Bank - under any circumstances) and look at investing it. Likely to be a much better return - in the long run - than savings. If done wisely - no more of a risk than inflation has on savings rates.

daydreamer16

Thanks Mike-think I've got my head round that! The sum is significant (to us anyway!)-£120,000, and yes I'm under 65. Neither of us are terribly clued up where money is concerned and are very scared of getting our fingers burned (even singed would hurt!) so would prefer a lower rate than any sort of share scenario. We are going to have to juggle a bit as he pays 40% tax so we are going to have to work out if it's best for me to get as much gross interest as I can and the remainder in his name or whether we should put the whole whack in my name and pay 20% on the lot. My brains are scrambled!

ThriftyFelicity

You will be best off putting all the savings in your name, unless your hubby is going to use his ISA contribution, which of course would be tax-free and in his name.

If you want the lowest risk possible, then you should stick with fixed rate bonds from UK-regulated banks. Interest rates are either going to rise or stay low for years (depends on who you listen to ), so you may want to hedge your bets by placing some of your cash in each of one, two, three, four and five year fixed rate bonds. That way, if rates are higher in a year, you will have some cash available to put in at a higher rate, but if they stay low you will be taking advantage of the higher longer-term rates. (That's assuming you won't need to access the cash.)

You may also want to think about putting between 5k and 7k into a Lloyds Classic Account with Vantage, where you'll earn 4% but still have instant penalty-free access.

daydreamer16

All good advice Felicity-thanks. I was a bit concerned about tying everything up for 5 years so splitting it as you suggest is a great idea. Also, the the Lloyds Vantage thing is definitely something to look into-we are Lloyds customers and didn't even know about it!

7891368

Remember the 50,000 limitso your money is protected.

Mikeyorks

daydreamer16 wrote: »

The sum is significant (to us anyway!)-£120,000, and yes I'm under 65.

On current interest rates - in your name only - you will get around £3.6k to £4k if you fix for a year? Add that to your pension income for 2011-12 (when the interest will be paid and therefore taxable) and you're in the area of £7500 / £7840?

Your personal allowance (PA) for that year will be a minimum £7475 - leaving only a modest amount taxable. Where your Savings interest hits the band formed by your personal allowance + £2440 (see link - top row of 2nd table re 10% rate) then your excess of £25 / £365 is only charged at 10%.

So - putting it all in your name is definitely advantageous - as your husband would pay 40% on all his interest. You pay 0% on most and 10% on a small amount? But - if you go above £7475 income overall? You do have to suffer 20% deduction on the interest at source .... then (R40) claim back all the 20% up to the level of your PA - and 10% for up to the next £2440 of income.

http://www.hmrc.gov.uk/rates/it.htm

Jonbvn

OP,

Makes sure you fill up your ISA's before considering other savings accounts.