Advise on tax on bank interest during career break

jem16

ejv wrote: »

Almost certain I wouldn't cross £8105, but may exceed depending on my monthly bonus.In that case, if I call banks in Sep 2012 or even at the end of this FY, would they backdate it?

If interest had already been paid and taxed, then it is likely you would have to reclaim it yourself. The other option is to file the R85 and if you do cross over then phone the bank up and tell them.

Also,both my savers are fixed and pay the interest annually.I've started them while I was in tax bracket, but interest would be paid when I'm out of tax bracket. Would that cause any problem.

Thanx:)

Interest counts for the tax year in which it is paid.

Remmember though that you have to add up all of your income, including gross interest to see if you go over the personal allowance.

psychic_teabag

Income tax is based on income over the whole financial year. Doesn't really matter when in the year you receive it.

It sounds like it would be useful if you could arrange your savings to pay interest after 5th April 2013 - eg by starting a new fixed-term in an account which pays on the opening anniversary - but that may not be easy to arrange if your money is already fixed.

ejv

Thanx guys...

I'd never heard of something called R85!!!!:o

So is it legal if a high tax payer use this loophole to save in unemployed spouse's account and avoid tax on bank interest altogether?

jem16

ejv wrote: »

So is it legal if a high tax payer use this loophole to save in unemployed spouse's account and avoid tax on bank interest altogether?

Perfectly legal. As long as you trust each other.

Remember that savings interest counts as taxable income.

Mikeyorks

ejv wrote: »

So is it legal if a high tax payer use this loophole to save in unemployed spouse's account and avoid tax on bank interest altogether?

It's not really a loophole. All our cash is in my wife's name - for exactly that reason. And investments are 50:50 to maximise both CGT allowances.

Looking at my P60 received today - the Chancellor isn't missing out much as a result!

ejv

jem16 wrote: »

Perfectly legal. As long as you trust each other.

Remember that savings interest counts as taxable income.

Holy smoke.... tell me this is no joke.....:shocked:

Wouldn't HMRC raise any alarm bells as to the source of income of an unemployed person?:eek:

Reaper

psychic_teabag wrote: »

Income tax is based on income over the whole financial year. Doesn't really matter when in the year you receive it.

That doesn't sound right. If you had a fixed 2 year savings account that paid all the interest at the end of the term then none of it would be taxable in year 1 and all of it would be taxable in year 2. (The AA has done savings accounts like that in the past).

So it does very much matter for tax purposes when the interest is paid. Though note as soon as the interest is added to the account it becomes taxable even if you do not withdraw it.

psychic_teabag

Yes, it matters (only) within which year it was paid. But it doesn't matter whether it was 1st May or 1st April. Income tax for the year is based on income over the whole year.

The point was that OP is working until September, then no income. But it doesn't matter whether the interest is paid while they're working or while they're studying. It's income over the entire year that matters.

So yes, if interest is paid on maturity of a 5-year account, all income tax is due that financial year, even though it was earned continuously through the life of the account.

ejv

psychic_teabag wrote: »

Yes, it matters (only) within which year it was paid. But it doesn't matter whether it was 1st May or 1st April.

Wouldn't these dates be in different tax years?

CLAPTON

for this tax year what do you expect your gross income to be (i.e. salary plus gross interest paid (excluding ISA))

and what is the equivalent for the next tax year?