Non tax payer savings query

missile

daydreamer16 wrote: »

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!

You will only pay tax on the income over your tax allowance NOT on the whole lot. If you are not able to make R85 declaration, you should ask for a tax assessment and reclaim any overpayment after 05th April 2011.

Thus as a couple you would be best to put all savings in your name and if that would put you over the tax allowance you might want to consider ISAs for both.

neil324

Mikeyorks wrote: »

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

Am i reading it incorrect. If your income from savings is above £2440 then 10% on the £2440 does not apply and you will be taxed 20%.

So if your income is say £7000 from savings, i know your personal allowance is £6475 so is your income from savings £525

Mikeyorks

neil324 wrote: »

Am i reading it incorrect.

I suspect so - from what you say.

Your savings interest is the top slice of your income. So you pile that on top of your earned income. At the side of it you put your personal allowance (PA) (say £6475). And you pile the £2440 10% rate on top of your PA. Making £6475 + £2440 = £8915. So you've got total income in one column (interest on top) and total (potential) allowances at the side of it (10% rate on top).

1. First check is if your earned income exceeds £8915? If it does, and that applies to most people - the 10% rate doesn't exist for you. Bit like Briggadoon - it just disappears in the mist. If not ..................
2. Next check is if your earned income is above £6475. If it is then any part of your savings interest from the top of your earned income up to £8915 is chargeable at 10%. Any of your savings interest sticking up above £8915 ...... is chargeable at 20%. If not ................
3. That leaves - that your earned income is below £6475. So - any part of your savings interest up to £6475 .... is tax free. Any part going above £6475 and up to £8915 .... is at 10%. Any part rising above £8915 ...... is at 20%

Worth noting - you can only file an R85 for gross interest if your earned income + gross interest is within your PA. If you go into the 10% rate - the R85 doesn't apply and you have to suffer the standard 20% witholding tax on all the interest - then reclaim.