Personal Savings Allowance guide

DragonQ

Funnily enough, this'll probably be the first tax year in a while where I'll earn under £1000 interest so I won't have to do anything. It might be close though, considering one of my regular savers matured right at the start of this tax year.

polymaff

DragonQ wrote: »

Funnily enough, this'll probably be the first tax year in a while where I'll earn under £1000 interest so I won't have to do anything. It might be close though, considering one of my regular savers matured right at the start of this tax year.

Yes, it seems to be a long time since 8% was an unexceptional rate of return - and it'll be a while before we get anything like that again.

If it is relevant, it is one advantage of monthly interest that these "lumpy" events don't occur.

DragonQ

polymaff wrote: »

Yes, it seems to be a long time since 8% was an unexceptional rate of return - and it'll be a while before we get anything like that again.

If it is relevant, it is one advantage of monthly interest that these "lumpy" events don't occur.

Well one could also consider it an advantage that the whole year's interest was awarded tax-free despite 99% of it actually being earned in the previous tax year, where it would've been taxable.

MikeCSmiffy

As a higher rate tax payer I have been squirreling away savings in fixed rate cash ISAs. However now the kind tax man has allowed me up to £500 p.a. in interest without taxing me further I was wondering about moving some money into a 2 year fixed rate bond when my next ISA matures. I can certainly get more interest that way... but how does the tax man calculate my annual interest?
In terms of interest earned would the total interest be split 50/50 between the 2 years for the bond (i.e. do i declare 50% of that interest in each year) or does the full 2 years worth of interest count in the year in which the bond matures.
Let's say I can get 2% interest in a 2 year fixed rate savings bond. Over the 2 year term of the bond I would earn 4.04% of the amount originally invested and that interest would be paid on maturity. So if the tax payable is based on the interest at maturity and I want to stay below the £500 tax free limit in the year of maturity the maximum I can invest in such a 2 year bond would be £500 divided by 4.04% = £12,376. Is that right?
But working that way I could have 2 such bonds each with the same amount invested and maturing on alternate years. Is that right too?

LXdaddy

MikeCSmiffy wrote: »

As a higher rate tax payer I have been squirreling away savings in fixed rate cash ISAs. However now the kind tax man has allowed me up to £500 p.a. in interest without taxing me further I was wondering about moving some money into a 2 year fixed rate bond when my next ISA matures. I can certainly get more interest that way... but how does the tax man calculate my annual interest?
In terms of interest earned would the total interest be split 50/50 between the 2 years for the bond (i.e. do i declare 50% of that interest in each year) or does the full 2 years worth of interest count in the year in which the bond matures.
Let's say I can get 2% interest in a 2 year fixed rate savings bond. Over the 2 year term of the bond I would earn 4.04% of the amount originally invested and that interest would be paid on maturity. So if the tax payable is based on the interest at maturity and I want to stay below the £500 tax free limit in the year of maturity the maximum I can invest in such a 2 year bond would be £500 divided by 4.04% = £12,376. Is that right?
But working that way I could have 2 such bonds each with the same amount invested and maturing on alternate years. Is that right too?

There are many posts that explain that the date that interest is PAID determines which tax year the interest counts.


So if the terms of the bond are that interest is credited annually (even if it is added to the balance in the bond rather than paid into another account) the there are two years in which the interest is PAID.


However, if the T&C are that interest is paid at the end of the term then all the interest is PAID in a single tax year.

masonic

MikeCSmiffy wrote: »

As a higher rate tax payer I have been squirreling away savings in fixed rate cash ISAs. However now the kind tax man has allowed me up to £500 p.a. in interest without taxing me further I was wondering about moving some money into a 2 year fixed rate bond when my next ISA matures. I can certainly get more interest that way... but how does the tax man calculate my annual interest?
In terms of interest earned would the total interest be split 50/50 between the 2 years for the bond (i.e. do i declare 50% of that interest in each year) or does the full 2 years worth of interest count in the year in which the bond matures.
Let's say I can get 2% interest in a 2 year fixed rate savings bond. Over the 2 year term of the bond I would earn 4.04% of the amount originally invested and that interest would be paid on maturity. So if the tax payable is based on the interest at maturity and I want to stay below the £500 tax free limit in the year of maturity the maximum I can invest in such a 2 year bond would be £500 divided by 4.04% = £12,376. Is that right?
But working that way I could have 2 such bonds each with the same amount invested and maturing on alternate years. Is that right too?

It depends entirely on when the interest is paid. So if you receive interest only at maturity, then your calculation is correct and you could open accounts on alternate years so that the allowance for each tax year is utilised. If interest is paid annually (which is what normally happens), or indeed monthly, then you could put in around twice as much and wouldn't need to bother opening accounts on alternate years.

MikeCSmiffy

talexuser wrote: »

I thought that it depended on when the interest was credited, even if you did not withdraw it and let it compound. So if the account said so much interest per year, but you cannot withdraw for X years, then each interest counted towards that tax year?

However if the fixed term has terms that interest was not credited until the year of completion then obviously it all counts in that tax year?

Thanks, but your response says "I thought that". Your answer certainly seems logical, but who ever heard of logic and tax in the same sentence? :rotfl:

Can anyone provide me with a definitive answer?

polymaff

MikeCSmiffy wrote: »

Thanks, but your response says "I thought that". Your answer certainly seems logical, but who ever heard of logic and tax in the same sentence? :rotfl:

Can anyone provide me with a definitive answer?

https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim2400

limayankee

Can anyone point to official advice (i.e. directly from HMRC) on whether the personal savings allowance includes foreign interest?

Unofficial sources are inconsistent: some claim that it does, others say that it's unclear or yet to be decided. I can't find anything on on a gov.uk website that confirms either way.

Google "personal savings allowance" "foreign interest"

(sorry not allowed to post links because I'm a new user)

topgirl2011

Having recently sold our house, my husband and I currently have over £100,000 to invest. Using the best paying accounts, I estimated that our interest would amount to more than £1,000 each. But on visiting my local building society, they tipped us off that if we have less than £17,000 taxable income per year then we would not have to pay any tax at all on the interest from our savings. See point 3 on the government website gov.uk under personal savings allowance. You might like to mention this in your weekly email for the benefit of others.