Tax Rate on Interest from Savings Account

DotMatrix

I'm lucky enough to earn a salary that is part taxable at 40%. I also have around £20k in a savings account. What rate to income tax will the bank take from the gross interest paid relating to this savings account. I have a feeling the bank has no idea what I earn so I think it's 20% tax they are taking, but should I have to pay more
given part of my salary is 40% taxable?

CLAPTON

the banks deduct 20% before givng you the interest;
if you earn more than 42,475 pa in salary then you are liable to declare the interest paid to HMRC and to pay the additional 20% tax

zygurat789

And the onus is on you to declare, on time. Now if you had a spouce who was not paying higher rate tax!!!!!

System

I assume that you already have as much as possible in tax free savings accounts ? (ISAs, NS&I, etc.)

DotMatrix

BAA1 wrote: »

I assume that you already have as much as possible in tax free savings accounts ? (ISAs, NS&I, etc.)

Yes, maxed out on my cash ISA. I've just opened a Santander savings account @ 2.75% (for 1 year)

I'm not sure on a lot of the NS&I savings products as there appears to be risks involved with investing my money, particulary the RPI+0.5% account. Especially as RPI is due to fall at some point in 2012.

le_loup

No risk at all.
Inflation plus guaranteed. You can't get that anywhere else.

p00hsticks

As Clapton says, the building society will only be deducting tax at 20% and as a higher rate taxpayer you need to pay more. You should call or write to your tax office and let them know. Chances are that they'll send you a simple one page form (the reference of which I can never remember) that lets you declare savings interest and dividend interest. They may well then amend your tax code going forward in order to collect the additonal tax owed.

agrinnall

The form is a P810. It looks like you can't download this one, you can only get one by advising HMRC that you need to pay higher rate tax on your savings interest - see here.

DotMatrix

I earn less than £42k so ok on that front.

With regards to NS&I savings I haven't seen anything that really stands out, including the RPI plus 0.5% invetsment. Bearing in mind in the short term I'm more than likley to earn 0.5% on my funds (due to forecast deflation from currect RPI levels in 2012). The fact I can easily obtain 2.75% on my funds is a lot more attractive given what will be in store with RPI index linked investments if considering now.

I see a lot of the NS&I invetsments as only offering short trem investment solutions rather than offering anything I would stay with in the long term. Their 4 or 5 year bond yields 2.25% which is rediculous for such a long date on an investment.

jennifernil

DotMatrix wrote: »

I earn less than £42k so ok on that front.

If that is the case, you are not in the 40% tax band yet, which is not what you said in your first post.

DotMatrix

jennifernil wrote: »

If that is the case, you are not in the 40% tax band yet, which is not what you said in your first post.

Part of my salary is taxed at 40%. The band for 40% income tax is £35k