Question about the £1000 personal savings allowence 2016

thedayfamily1

From April next year most of us can earn up to £1000 in interest without paying tax. The bank won't deduct tax. I understand that tax may be taken using our PAYE code if we earn enough (over £42000).
My question is this ...
I have saved for years to help offset my mortgage interest (by putting my savings in accounts that earn more interest than I pay on my mortgage). I now earn more than £1000 each year in interest (but I still have a mortgage!!), so am I expected to pay tax on some of my interest even though I earn less than £40,000? and if so, how? Self declaration? Any advice welcome.


P.S. My savings are in multiple accounts. No one account earns anywhere near the £1000 limit.

bigadaj

Yes, you'll have to pay tax normally by self assessment. If it's only savings interest then hmrc may accept a simple declaration or adjust your tax code if the interest is ongoing, though self assessment for many people should only take a few minutes if their situation is simple.

thedayfamily1

A quick follow-up question. Can I escape from paying some tax next year if some of my savings are put in ISAs (including the new P2P from April 2016) or does this £1000 savings allowance cover all savings including ISAs? I have also put some money in P2P investments. Do the profits on these investments count towards this £1000 as well?
So many questions!!

le_loup

not ISAs.
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Archi_Bald

You are paying tax on all your interest now as the banks automatically deduct it. They stop doing that from tax year 2016-17. So in all likelihood, if you leave your money where it is now, you will be better off from next April, up to £200 a year.

If it currently makes no sense for you to keep your money in a cash ISA, it's not likely to make much sense from next April as the interest rates will be roughly the same as they are today. P2P might yield better interest than cash ISAs but there is no guarantee that you'll get all your capital back, let alone make better interest than you do already. In any case, the max you can put into an ISA this and next year is £15,240 in each tax year.

bigadaj

thedayfamily1 wrote: »

A quick follow-up question. Can I escape from paying some tax next year if some of my savings are put in ISAs (including the new P2P from April 2016) or does this £1000 savings allowance cover all savings including ISAs? I have also put some money in P2P investments. Do the profits on these investments count towards this £1000 as well?
So many questions!!

Don't make the tax tail wag the investment dog. As above you are paying tax on this return now in any case, so you'll be paying £200 less in tax if you are a standard rate taxpayer.

Isas are separate, though cash isas pay so much less than current accounts currently you would, still be better off getting the higher rate, even taxed compared to untaxed.

Savings allowance only covers unwrapped savings, ie not including isas as they are fax free in any case.

P2p is separate and would be taxed unless in an isa, if you have earnings from p2p currently then you need to declare that and pay tax on it.