Tax on savings for higher rate taxpayer

johan46

So, I'm trying to understand how this works.

I'm on a 40% tax rate since last year, as I got a nice salary bump.

I have various savings accounts (non-ISAs) with different banks. Every year I make about 500 to 1000 pounds on interest, after tax.

This interest is automatically taxed by the bank using a fixed 20% rate.

Which was all nice and good, while I was a basic rate taxpayer.

What I am trying to understand is this:

As a colleague told me, and I'm reading on HMRC website, since I'm a higher rate taxpayer, I now owe the taxman the difference between 20% and 40% on savings interest.

Is that correct? What do I need to do?

I should note that I never do self-assessment or anything really as I don't have any mortgages or property or other income. All my tax issues are sorted automatically using PAYG. Should I do something?

robrooo

You need to ask HMRC for a P810 Tax Review form. It details your untaxed income. They will then decide whether to adjust your tax code, or ask you to complete a self-assessment.

thesaver79

It is correct.

For the amounts you mention, it's enough to call HMRC and give them the exact amount of gross or net interest you earned in the previous financial year and they will do the rest (for example adjust your tax code if you pay tax through PAYE).

That's what I did last year and what I'm going to do this year.

CLAPTON

so last year 2012-13 you earned more than 42,475 after any pension payments were deducted?

johan46

Thanks to all who answered.

@robrooo: Thanks for that, I will enquire about the P810 form

@thesaver79: The problem is that I do not have any official documents showing how much I earn through savings, and it's all split between a few savings or current accounts with interest on different banks. Not sure how can I get the 'exact' number I earned last year!

On another note: I also have an offshore account with lloyds offshore at Isle of Man. That account is in Euros and has a 2% interest rate. I have no idea how this is taxed!

@CLAPTON: yes, my PAYG salary is more than that even after tax. I don't have other income (except the interest out of those small savings). I also don't have a pension plan.

onlyroz

I'm in a similar position, and I'm unclear what the threshold is at which you have to fill out a self assessment form. Is it *any* savings at all? Or is there a minimum you're allowed?

I've been trying to shunt everything I can into ISAs, premium bonds and my husband's name, but there's still a few thousand that I don't know what to do with, and I'm not sure how much this sort of amount matters to HMRC.

robrooo

Regarding official documents - You should get a statement from your various banks at the end of the tax year stating the interest earnt, and the tax deducted (at the base rate). Some banks these days make this available on line or you might just see the interest transaction on your statement (online or paper). Normally you don't need a paper version, you just need the number for the form, rounded down!, and HMRC seem to take your word for it (I guess they have ways and means to check if they need to).

I don't know much about off-shore accounts (not in that bracket!), but the uk treasury did a deal with the Isle of Man this year to share information...so not sure if it would be tax free anymore...maybe Lloyds can advise?

innovate

Having to do a self-assessment, and notifying HMRC of savings interest are two different things. If you do a self-assessment, you are already telling HMRC about your savings, so you don't need to tell them separately.

Do you have to do a self-assessment? http://www.hmrc.gov.uk/sa/need-tax-return.htm

If you do not need to do a self assessment, you can still do one. Only takes 20-30 minutes if your affairs are simple.

But if do don't do a self-assessment, and your income from employment, savings and investments puts you above the basic rate income brackets, you have to tell HMRC about your savings and investment income. Just call them and discuss your personal circumstances with them.

If you don't tell them, they'll eventually catch up with you because they have sight of all interest and dividend payments. You may get asked some awkward questions as to why you did not declare your income in a timely manner, and may be worse. So best to get your affairs sorted with their help within a reasonable timescale after the end of the financial year.

grey_gym_sock

basically, you have to fill in a return if HMRC ask you to. and you're obliged to inform them if you might owe them tax. in theory, when you inform them, they could send you a tax return. but if it's just a piffling amount of interest, they'll arrange to collect the tax through your tax code instead.

interest from the isle of man is sometimes not taxed at source at all, so you have 40% tax to pay (if on higher rate). i think you now have a choice, of either having some tax deducted at source (i'm not sure how much), or "exchange of infomation" meaning they tell HMRC how much interest they've paid you.

so you may need to give HMRC 2 figures: interest from the isle of man (paid gross), and interest from UK (paid with 20% deducted).

Lokolo

johan46 wrote: »

@CLAPTON: yes, my PAYG salary is more than that even after tax. I don't have other income (except the interest out of those small savings). I also don't have a pension plan.

You should seriously be considering this. With tax relief, possible salary sacrifice (also reducing NI), and possible employer contribution it would make a very nice bump in your retirement income.

opinions4u

I push myself back under the 40% threshold by lumping a decent wedge into pension contributions.

Get as much of your savings in to ISAs as possible.

Transfer some to your partner if they're trustworthy and pay a lower rate of tax.

Consider remortgaging to an offset mortgage.

If you give to charity do it via payroll giving and benefit from tax relief.

If you have a company car get a much lower CO2 emitter on renewal.