tax on savings.

odannyboy

Just applied for a capital one fixed rate bond (2 years). saving 30k.
as a basic tax payer how much tax will I have to pay on this? read about a form from the inland revenue I can send to capital one to reduce my tax?

Hope anyone can help, (as you may have guessed I,m new to savings)

grumbler

odannyboy wrote:

read about a form from the inland revenue I can send to capital one to reduce my tax?

I think you read about form for non-taxpayers to avoid paying standard 20% tax on interest.

INLAND REVENUE:
... Where an individual has savings income in excess of the starting rate limit they will be taxed at the lower rate of 20% up to the basic rate limit and at the higher rate of 40% for income above the basic rate limit.
Starting rate limit - £2,090
Basic rate limit - £32,400 (2005/06)

If your salary+interest on savings gets more than £32400 you must pay 40% on the amount above £32400.

blinko

a normal tax payer about 20% odd this will knock 1% off of a 5% account hence net is 4% a higher rate will have to pay 40% and a non taxpayer will have to get an R85 form and claim back the tax this is assuming you have used your annual allowances etc what rate are you getting from them ?

odannyboy

the rates 5.30%, my interest on the 30k over two years will take me into that 40% tax bracket, maybe its worth me only putting 25k into the fixed rate bond?

deemy2004

If it takes you into the 40% band then you will need to pay extra tax on your self assessment report in the year the interest is paid.

grumbler

odannyboy wrote:

I,m new to savings

... and you are close to 40% limit.

Do you use your allowance for tax-free savings (ISAs)? Did you read 'ISAs - save tax' article?
If you have wife who earns less can you make savings on her name to save on taxes?

P.S. Do you have mortgage?

grumbler

Paul_Varjak wrote:

How can you know if he is close to 40% tax bracket?

You missed post #4!

grumbler

odannyboy wrote:

... my interest on the 30k over two years will take me into that 40% tax bracket...

Did you take your £4895 allowance (05/06) into account? You pay 40% on income exceeding £4895+£32400.

odannyboy

Thanks for the advice.

The full picture is I,m putting together a portfolio for 50k, as a basic tax payer who is,nt married.

I,ve used my isa allowance, does the i.s.a count towards the 4895, you mention?

I have premium bonds and I,m looking for a pension, any other tax free areas I should be looking at? Offshore savings?

grumbler

odannyboy wrote:

I,ve used my isa allowance, does the i.s.a count towards the 4895?

NO.

odannyboy wrote:

...any other tax free areas I should be looking at?

Repaying or 'offseting' mortgage if you have one.