Tax on Santander 123 account interest?

Dr_Wu

Hi

Use use our Santander 123 current account and credit card as our main current account and also leave our savings in there.

We have an average balance of around 12K, earn around £40pcm interest and have earned a total of nearly £900 since opening the account.

My question is how is the tax on the interest we have earned deducted? As I haven't been aware of paying any tax thus far....

I am (just into the 40%) tax bracket and my wife is a lower bracket tax payer. The account is a joint one.

Thanks in advance

jem16

Dr_Wu wrote: »

Hi

Use use our Santander 123 current account and credit card as our main current account and also leave our savings in there.

We have an average balance of around 12K, earn around £40pcm interest and have earned a total of nearly £900 since opening the account.

My question is how is the tax on the interest we have earned deducted? As I haven't been aware of paying any tax thus far....

It's automatically deducted before you receive it at basic rate tax.

I am (just into the 40%) tax bracket and my wife is a lower bracket tax payer. The account is a joint one.

Thanks in advance

Then you need to inform HMRC so that you can pay the extra 20% tax due on your half of the interest.

Are you sure you pay 40% tax - remember that any pension contributions will reduce your taxable income.

Krash420

Also note that from you only need to pay the extra 20% on half of the interest that you've gotten, as half will be attributed to your wife who has paid the correct amount already - and only on years where you've been taxed at the higher 40% limit (assuming you've just gone above it, I assume you weren't above it previously)

Another thing to note is that from April next year you will no longer need to pay any tax unless you get more than £750 interest on that account - which is not actually possible, given the 20k cap for interest (the £750 figure is calculated as half of your wifes £1000 interest tax-free allowance, plus half of your £500 interest tax-free allowance).

Generally I've found that I've only needed to pay around £30 extra in tax previously (from non 123 accounts), which isn't too big a loss in the grand scheme of things.

eskbanker

Dr_Wu wrote: »

My question is how is the tax on the interest we have earned deducted? As I haven't been aware of paying any tax thus far....

It's clearly shown in the online statement entry, e.g. "INTEREST PAID AFTER TAX 10.05 DEDUCTED £40.20", i.e. gross of £50.25 has had 20% tax of £10.05 deducted to leave £40.20 paid net.

However, the £40pcm is roughly what you should earn net with a £20K balance, so I can't see how you'd get that on £12K, you're not registered to be paid gross are you? Even then, it still wouldn't stack up, are you definitely earning £40pcm in interest or does that include some cashback?

jem16

Krash420 wrote: »

Another thing to note is that from April next year you will no longer need to pay any tax unless you get more than £750 interest on that account - which is not actually possible, given the 20k cap for interest (the £750 figure is calculated as half of your wifes £1000 interest tax-free allowance, plus half of your £500 interest tax-free allowance).

If the Op is a higher rate taxpayer, then their interest tax-free allowance will be £500 and not £1000.

They may also have interest from other bank accounts.

Dr_Wu

eskbanker wrote: »

It's clearly shown in the online statement entry, e.g. "INTEREST PAID AFTER TAX 10.05 DEDUCTED £40.20", i.e. gross of £50.25 has had 20% tax of £10.05 deducted to leave £40.20 paid net.

However, the £40pcm is roughly what you should earn net with a £20K balance, so I can't see how you'd get that on £12K, you're not registered to be paid gross are you? Even then, it still wouldn't stack up, are you definitely earning £40pcm in interest or does that include some cashback?

sorry, quite right, that includes some cashback

Dr_Wu

jem16 wrote: »

If the Op is a higher rate taxpayer, then their interest tax-free allowance will be £500 and not £1000.

They may also have interest from other bank accounts.

next year I'm going part time in prep for retirement in 2017 so I'll drop comfortably into the lower tax bracket.

molerat

Does your wife earn under £15600 ? If so she may be able to have her half paid tax free.

Vortigern

Dr_Wu wrote: »

sorry, quite right, that includes some cashback

Presumably you know the cashback is not taxable?

Dr_Wu

Vortigern wrote: »

Presumably you know the cashback is not taxable?

didn't think it was but thanks for confirming

Dr_Wu

molerat wrote: »

Does your wife earn under £15600 ? If so she may be able to have her half paid tax free.

thanks but she's a fair bit over that sum