saving account and their interests

Cpu2007

I have this question that made me wonder whether it can be applied or not.

Saving accounts (not ISA) have a good interest rate, the only problem with these interest rates is that there's a tax charge on the profit which reduces the profit drastically. However the 20/40% rate is applied to a tax payer but what if the person isn't a tax payer?
If someone doesn't work and have some money saved in an easy saving account, will he/she still have to pay the tax over the profit?

Vortigern

Non-taxpayers can fill in HMRC Form R85 (google for it), then present it to their bank. Interest in the current and future tax years will then be paid tax-free.

Cpu2007

Yeah I was reading about this and wondering, cannot that be a good loophole.

For example, if I filled my ISA account and instead of putting money in my saving account I put it in the account of my mother, because she doesn't work, the profit returned will be tax free and plus it will give me the chance to put as much money as I want without limit and withdraw it as well right?

talexuser

Cpu2007 wrote: »

it will give me the chance to put as much money as I want without limit and withdraw it as well right?

No. She will pay tax after reaching her personal allowance, which might be soon if she has a pension or other savings. And legally the money is no longer yours, she can do what she likes with it.

xylophone

Money in an account in your mother's name legally belongs to your mother and would be counted as hers were she ever to need means tested benefits.

On her death, any money in her accounts is counted as money in her estate and falls to be dealt with as such.

Cpu2007

thank you for this extra information, so the max amount would be £8,104 right? is this something that can be added yearly? what I mean is that if next year I add 8000 more making the total amount in the saving account around £16k, will this be taxed or will it be considered separately as two personal allowances for each year?

I don't have any problem with money being counted as her, I give her some money every month and thought using this method of saving some money in her saving account will benefit her and myself as I can still use money from her account; regarding your last comment, if money falls in her estate, in case of an unfortunate scenario, who does the money go to?

Newly_retired

Depends whether she has made a will or not.
Too many dangers in putting money in someone else's name, especially if she is on Pension Credit or you yourself are likely to be eligible for Tax Credits or any other benefits.

Cpu2007

my mother isn't on pension as she's a housewife and my dad is the only one who works.

Other than making a will I don't see any problem here. Not sure if the money received through a will has charges or not.

xylophone

You seem to be rather confused.
See here http://www.hmrc.gov.uk/rates/it.htm
for tax allowances.

Interest on money in a savings account is taxed on the whole amount paid in in a tax year.

You speak of having access to your mother's account; if this is because it is a joint account then be aware that only the non-taxpayer's portion of the interest can be paid gross.

Any money in her estate on death will be distributed according to her will or according to the rules of intestacy if there is no will. http://www.hmrc.gov.uk/inheritancetax/

See also http://www.bllaw.co.uk/services_for_individuals/wills,_probate_and_tax/news_and_updates/joint_accounts.aspx

Cpu2007

xylophone wrote: »

You seem to be rather confused.
See here http://www.hmrc.gov.uk/rates/it.htm
for tax allowances.

Interest on money in a savings account is taxed on the whole amount paid in in a tax year.

You speak of having access to your mother's account; if this is because it is a joint account then be aware that only the non-taxpayer's portion of the interest can be paid gross.

Any money in her estate on death will be distributed according to her will or according to the rules of intestacy if there is no will. http://www.hmrc.gov.uk/inheritancetax/

See also http://www.bllaw.co.uk/services_for_individuals/wills,_probate_and_tax/news_and_updates/joint_accounts.aspx

I've already been on that site and the tax allowance is 8,105 as I said before, not sure what you mean.

I know interest is on the money paid in on the tax year but what I was trying to understand is how tax works in the next years;
For example;
Year 1: I pay in 8,105 (no tax will be deducted by the saving account)
year 2: I pay in in another 8k (making the whole amount 16k) will I have to pay taxes on this second year? even though these are tax allowances of 2 years.

alanq

Cpu2007 wrote: »

I've already been on that site and the tax allowance is 8,105 ...

For this tax year it is in fact £9,440. This means that you can have that total INCOME for the year before being taxed. It has nothing directly to do with the sums deposited.