Personal Savings Allowance guide

TheChoralFiend

My wife is likely to be below her personal tax allowance this year. Is the tax free interest counted as income. What I means is, if her income amounts to say £8k and her interest is £500 is her total income £8500 or £8000?

Dazed_and_confused

Assuming you aren't referring to genuine tax exempt things like ISA's then her taxable income would be £8,500.

I presume you are posting on this thread in the belief your wife is able to benefit from the Personal Savings Allowance. She isn't. Low income individuals cannot make use of this.

To be able to make use of it (it is actually a 0% tax rate not an "allowance") she needs to have used her Personal Allowance and the savings starter rate of tax where upto £5,000 of savings interest can be taxed at 0%.

Has your wife looked at the benefits of Marriage Allowance?

NB. If she does it very important she looks at each tax year separately, just cause she may be eligible now doesn't mean she will be for all tax years it had existed.

Consumerist

TheChoralFiend wrote: »

My wife is likely to be below her personal tax allowance this year. Is the tax free interest counted as income. What I means is, if her income amounts to say £8k and her interest is £500 is her total income £8500 or £8000?

Her total taxable income will be £8,500 if these are her only sources of income. The £500 savings interest, however, will be taxed at the nil rate i.e. no tax will actually be paid on it.

polymaff

TheChoralFiend wrote: »

My wife is likely to be below her personal tax allowance this year. Is the tax free interest counted as income. What I means is, if her income amounts to say £8k and her interest is £500 is her total income £8500 or £8000?

It is all income, but ..

Start by sorting out her taxable from her non-taxable income. Non-taxable things are benefits like PIP, Premium Bonds prizes and interest from savings like ISAs and NS&I inflation-linked certificates.

Set the non-taxables to one side. The sum of the rest is your wife's total taxable income.

Harrhy

I thought that the tax on the interest on fixed term bonds was payable when they matured and you received the interest. I have found out this morning from National Savings that the tax due on NS&I Growth Bonds is payable annually, years before the bond matures. You can get the money out by losing some of the interest but that seems to be a rather drastic way to reduce the amount of tax to be paid!
Am I mistaken? Is the interest on all fixed term bonds payable annually?
Do they mean the tax is declared annually but paid at the end?

polymaff

It varies. Could be monthly, annually or at maturity. Check the T&Cs and the bond options.

ColdIron

It depends on the account, all my fixed term bonds pay annually into a nominated account. I have 2 NS&I accounts, one is tax free but the other retains interest paid and I declare it annually on my self assessment

But you may want to read this article on NS&I

• When you pay tax on bond interest depends on whether you are allowed to access your money before the official maturity date, says HM Revenue & Customs (HMRC).
• If you can, you typically pay tax each year when the interest is added to your account. But, if not, tax is not due until the bond matures.
• If you save the maximum £10,000 in NS&I’s Three-Year Guaranteed Growth Bond paying 1.95 per cent, you will earn £195 interest in the first year, £198 in year two and £203 in the final year — a total of £596.
• Currently, you can use your £1,000 personal savings allowance against each annual interest payment. It allows basic-rate taxpayers to earn up to £1,000 in interest a year without a tax bill. Higher-rate payers get £500.
• But, with the new bonds where you cannot access your money, the whole £596 will count against just one year’s allowance — the year your bond matures. This means higher-rate taxpayers will immediately face a tax bill.
• Basic-rate payers may also have to pay tax if they use up more than £404 of their £1,000 savings allowance elsewhere that year.

https://www.thisismoney.co.uk/money/saving/article-6904519/Blow-million-savers-NS-prepares-raft-changes-popular-accounts.html

Harrhy

Thank you ColdIron that article is most useful and is exactly what I wanted to know.

gayn

My tax code has been reduced by 15 because of interest earned, so next year i expect around £60 in interest so my tax free allowance will be reduced by 60 because of this. I am very close to my allowance limit each year so this means I will pay tax earlier even though there is a £1000 personal allowance on interest. Not sure how this works with hmrc after calling them but surely can't be right . This would make me pay tax earlier if I now go over my limit a little bit which nullifies the interest out surely !!

polymaff

@harrhy

The official line is:

ITTOIA05/S370 provides that tax is charged on the full amount of interest arising in the tax year

Interest ‘arises’ when it is received or made available to the recipient. Interest has been made available if it is credited to an account on which the account holder is free to draw.

https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim2440