Martin says about ISAs . . .

The_Salad

Martin says about ISAs . . .

"In normal savings your interest is taxed so a basic taxpayer loses 20% of it, higher 40%, top 50%. In an ISA, you keep it all."

How does that work . . . how does the bank know what rate tax payer you are, or are you supposed to declare it?

Confused on this point . . . .






How does that worMartin says

dunstonh

how does the bank know what rate tax payer you are, or are you supposed to declare it?

The bank doesnt know and doesnt need to know. It is not their responsibility.

If you are a higher or additional rate taxpayer and have income or interest paid using the wrong rate then you should declare it to HMRC. The system is self assessment. You tell HMRC if your situation requires more or less tax to be paid. If they find out later you havent paid enough (And they often do as their computers trawl for these things), they can make you pay it and penalise you by up to double and if the amounts are large enough they may consider legal action.

So, if you are a higher rate taxpayer, interest at the bank is only taxed at 20%. So, you have to let HMRC know how much the interest is and how much was taxed and they will collect the difference from you.

The_Salad

Thanks. So take this example . . .

Lets say I earn £50K (I wish) and have £10k savings which earns 1% interest. So after 1 year I have earned £100 in interest. Am I supposed to complete a tax return to pay £40 to the government because I'm a 40% tax payer?

Lokolo

The_Salad wrote: »

Thanks. So take this example . . .

Lets say I earn £50K (I wish) and have £10k savings which earns 1% interest. So after 1 year I have earned £100 in interest. Am I supposed to complete a tax return to pay £40 to the government because I'm a 40% tax payer?

No (almost though). The bank takes 20% automatically (it assumes everyone is a basic tax payer, unless you tell them otherwise).

So you would get £80 interest.

You would then need to complete a tax return to pay the additional £20.

dunstonh

A caveat to above is that if it only the interest that is short then a tax return is not required. Just notifying them is sufficient. It doesnt have to be the full tax return.

The_Salad

dunstonh wrote: »

. . . if it only the interest that is short then a tax return is not required.

Sorry, not sure what you mean . . .

Lokolo

The_Salad wrote: »

Sorry, not sure what you mean . . .

What he means is, if you are a 40% tax payer, regular person with no other income etc. and the only thing you would need to contact HMRC about is this interest, then you do not have to fill in a full blown self assessment. Just a letter would suffice.

Newly_retired

Just to return to the OP's original question, you do not need to declare your ISAs as interest is always paid tax free.

AirlieBird

Lokolo wrote: »

What he means is, if you are a 40% tax payer, regular person with no other income etc. and the only thing you would need to contact HMRC about is this interest, then you do not have to fill in a full blown self assessment. Just a letter would suffice.

Or even a phone call is sufficient. And in case the OP is wondering, the additional tax would then be collected through your wages by way of an adjustment to your tax code.

bigfreddiel

Newly_retired wrote: »

Just to return to the OP's original question, you do not need to declare your ISAs as interest is always paid tax free.

this point is often overlooked even tho' it's the bl**din' obvious - makes my annual tax return a doddle - so much so IR has said they won't be asking me for returns in future - believe it when I see it tho' - they said the sam last year and still sent me the forms for this year just gone!