Tax on savings - can anyone help?

Kwat47

Hi,

We're about to sell our house and hope to rent (until we self-build) using the interest on the proceeds from the sale (~£1m). I am a non tax payer so can anyone clarify whether there is a point at which the interest on this amount attracts tax as this will obviously affect how much we can spend on rented accommodation?

Thanks.

xylophone

You will have a tax free allowance appropriate to your circumstances.
http://www.hmrc.gov.uk/rates/it.htm
See also http://www.hmrc.gov.uk/tdsi/ten-per-cent-guidance.htm but remember to insert current rates into the examples.
Don't forget "safe savings" http://www.moneysavingexpert.com/savings/safe-savings

atush

@ around 3% per annum, you will be looking at 30K in interest. That is around 2.5K per month less whatever rate tax you will pay on it. Sounds like more than what you would need to rent.

If your OH pays tax, does he pay BR tax or HRT?

you have an allowance that won't cover it all, and you can only shelter 11K between you in cash ISAs. So most of the extra should perhaps be in your name if he/she pays HRT. but joint accts will be easier as you can be 'safe' with 170K in each acct instead of 85K in each sole named acct.

gkerr4

bear in mind that there is no such thing as a "sole account" when you are a married couple - any divorce lawyer would soon point that out! - so it doesn't really matter whose names the savings are in, the income will be a "joint" income and can be treated as such from a taxation point of view - so you will get both your allowances in tax free-earnings on that £30k interest - you will still be liable for tax on approx £14k of the £30 though, at the 20% rate.

Reaper

gkerr4 wrote: »

bear in mind that there is no such thing as a "sole account" when you are a married couple - any divorce lawyer would soon point that out! - so it doesn't really matter whose names the savings are in, the income will be a "joint" income and can be treated as such from a taxation point of view - so you will get both your allowances in tax free-earnings on that £30k interest - you will still be liable for tax on approx £14k of the £30 though, at the 20% rate.

Not true. The interest on a sole account will be taxed as just that person's income. So if one was a taxpayer and the other was not it makes a big difference whose name the account is in.

If a joint account is opened the interest is divided between the two for taxation purposes.

gkerr4

Reaper wrote: »

Not true. The interest on a sole account will be taxed as just that person's income. So if one was a taxpayer and the other was not it makes a big difference whose name the account is in.

If a joint account is opened the interest is divided between the two for taxation purposes.

thats not wholly true - he's going to have to enter a tax return - he's investing a million pounds and pays no other tax currently, so the return can be made in the form of dual income. The tax office will abide by this because if they were to claim that the income (on the million pounds, remember) was "solely" the income of the OP then a divorce lawyer would be quick to point out that it is a joint asset.

so yes, technically, it will be taxed at 20% at source by the bank, however the actualy tax owed would be an entirely different story. The OP would be better filing to receive gross tax and then settle at the end of the year through a return.

calypso_rhapsody

There seem to be a lot of assumptions being made here - perhaps the OP should clarify. Is the house a joint asset and will the proceeds be? You say 'we're selling ...' Are you a married couple? Does the other party pay tax and at what marginal rate?

Reaper

gkerr4 wrote: »

thats not wholly true - he's going to have to enter a tax return - he's investing a million pounds and pays no other tax currently, so the return can be made in the form of dual income. The tax office will abide by this because if they were to claim that the income (on the million pounds, remember) was "solely" the income of the OP then a divorce lawyer would be quick to point out that it is a joint asset.

I think you are mixing up the treatment of assets for taxation and divorce. They are two different things.

A divorce lawyer is about dividing up assets and if, for example, the husband owned everything that would not mean he got to keep it all.

However as far as the tax man is concerned a married couple can gift whatever they like to each other and the income from those person's assets are taxed separately according to who owns them. In that example the tax man would have no problem with the husband owning everything and the wife owning nothing.

it will be taxed at 20% at source by the bank, however the actualy tax owed would be an entirely different story. The OP would be better filing to receive gross tax and then settle at the end of the year through a return.

I am not sure the tax office would approve of you registering for tax to be paid gross if you expect to be a tax payer. Better to leave the account paying tax and claim it back later.

p00hsticks

gkerr4 wrote: »

The OP would be better filing to receive gross tax and then settle at the end of the year through a return.

The OP can't legitimately fill in an R85 declaration to get interest paid gross if they believe they will have to pay tax this year - they must get the interest paid net of baisc rate tax and sort out any under or overpayments at the end of the tax year.

gkerr4

Reaper wrote: »

I think you are mixing up the treatment of assets for taxation and divorce. They are two different things.

A divorce lawyer is about dividing up assets and if, for example, the husband owned everything that would not mean he got to keep it all.

However as far as the tax man is concerned a married couple can gift whatever they like to each other and the income from those person's assets are taxed separately according to who owns them. In that example the tax man would have no problem with the husband owning everything and the wife owning nothing.

I am not sure the tax office would approve of you registering for tax to be paid gross if you expect to be a tax payer. Better to leave the account paying tax and claim it back later.

poohsticks is correct - he can't register for gross interest - sorry for that.

I'm not sure on the other point - My point about the divorce awyer is that, for a married or civil partnered couple, there is pretty much no such thing as a sole asset - they would all be considered 'joint' by any solicitor. My only real experience here is based on rental income from a joint-owned property. this 'had' to be classed as joint income so 50% was paid at my 40% rate and 50% at my wifes 20% rate - it couldn't all go to her name in order to avoid the 40% rate. I'd have thought that the income from a million quid would have to have gone the same route surely?

CKhalvashi

Echo post 3.

You’ll pay the same tax as if you were employed, but without the NI element.

https://www.uktaxcauculators.co.uk (need to register email, I’ve never had spam from them) has a good thing to calculate tax on interest, as you’ll need to complete an R85 and pay tax on anything above that. Your bank will be able to help you with this.

CK