New to saving - tax/withdrawals?

Tiglath

Hi all - I'm new to saving and am trying to figure out the best way to do it for this coming tax year.

I opened a Tesco instant cash ISA this month, and have set up a direct debit for a small regular amount. I was planning to put the rest of my savings into my Natwest savings account, knowing that I'll need to make 2 withdrawals over this next year (June and October).

I'm a 40% taxpayer and I think I read that Natwest will pay net interest, having deducted 20% tax - I presume I'll have to declare the extra 20% on the interest earned to HMRC? How would I do this? I've never had to fill in a tax form. Do they amend my taxcode for the following year or do I pay it by cheque or what?

The amount I'll be saving will vary monthly but is likely to approach the cash ISA allowance for this new tax year by April 2014. I understand that once I withdraw cash from the ISA, I can't top it up if it will exceed the annual ISA limit.

Would I be better bunging as much as possible in the cash ISA up to my limit, knowing I'll need to take most out and declare the tax? Or am I better keeping the cash ISA for purely 'untouched' savings (which I won't need to withdraw), and putting the rest of the 'temporary' savings into the Natwest account? Or is there a third option I haven't thought of?

Any help gratefully received

gkerr4

my advice would be to fill your isa allowance every year if you can.

When you say you have recently opened an ISA but that you were going to put "the rest of your savings into natwest" - have you filled this years ISA allowance?

I regret not putting money in isa's earlier - when you don't have "that much" savings it is easy to wonder why to bother - but over time it makes a massive difference.

Like you i'm a 40% payer - so yes, you have to declare it in your tax return - you need to register now for self-assessment and do the tax return every years from now on to get to the figure you owe them.

My wife and i fill the ISA limit each year and have done for a few years - but this year i owe the taxman a few hundred quid on interest income and this could have been zero'd by just using isa's (and their predecessor) earlier in life.

Get the ISA to the limit and make it your lowest choice to make withdrawals from - that would be my advice - fill this years limit and as soon as the tax year comes, fill next years too and leave them there unless you have to.

jem16

Tiglath wrote: »

I'm a 40% taxpayer and I think I read that Natwest will pay net interest, having deducted 20% tax - I presume I'll have to declare the extra 20% on the interest earned to HMRC? How would I do this? I've never had to fill in a tax form. Do they amend my taxcode for the following year or do I pay it by cheque or what?

You will not need to complete a tax return if all you have is some extra interest to declare. Simply give HMRC a ring and give them the amount you are likely to earn in interest and they will amend your tax code to take the extra 20%.

Remember though that pension contributions will reduce your taxable income and that you should also claim the extra tax relief if your contributions are from net salary.

Tiglath

Thanks guys - I've got an initial small amount in the ISA, and a few hundred in Natwest savings so I'll transfer that to the ISA early next week to get it into this year's ISA allowance. I'll be paying into my pension again from July, and selecting my new taxable benefits, so am not quite sure what my new net salary will be. My ISA contributions for 2013/2014 will be from net salary - think I'd better give HMRC a ring and see what they say about adjusting my tax code and doing the self-assessment. My salary is the only income I'll have, apart from any savings income earned from now forwards, so I've not done a self-assessment before. But I'll definitely put everything I can into the ISA for this year up to my limit - thanks for confirming.

jem16

Tiglath wrote: »

think I'd better give HMRC a ring and see what they say about adjusting my tax code and doing the self-assessment.

Self assessment will not be needed. A simple tax code adjustment will suffice.

Yorkie1

I write to HMRC to let them know how much interest (non-ISA) I earned the previous year, gross & net of 20% tax, and I also tell them how much I gave in Gift Aid, and they just work my revised tax code out from that. No need for formal self-assessment.

gkerr4

jem16 wrote: »

Self assessment will not be needed. A simple tax code adjustment will suffice.

this is true - i should have said this - if it is 'just' the extra income from savings interest and you can accurately predict it, then they will just change you PAYE tax code to accommodate.