What is taxable interest?

TrickyDicky

Hi All

From April this year we are all entitled to a £1000/£500 tax free allowance on savings interest. but what makes up the taxable part?

Would switch incentives count?
I get the £10/month HSBC save together incentive. Would this be taxable?
If you had a halifax reward current account, would the £5/month income count?

I also have a couple of regular saving accounts that wont pay out until after april. Some money went in now and some will go in after april. Am I likely to receive the full 12 months interest tax free or not or partially paid and partially unpaid?

Any ideas how to pay extra tax (if due) to HMRC - will I have to do an annual self assesment?

antrobus

Taxable interest is simply the number shown on the Certificate of Interest provided by your bank.

So there is no need for anyone to get into a tizzy over what is or isn't taxable. Just use the number your bank has given you for the tax year in question.

TrickyDicky

But Im trying to plan ahead.
My mortgage interest rate is 1.99%, and so close to what I can earn from interest after tax. Im trying to work out what bank accounts I should have going forward and how much to save in them to earn more in savings than I would pay on the mortgage. It allows unlimited overpayments so currently any excess goes into the mortgage to avoid tax.

beefturnmail

I agree it would be helpful to have clarity on this as I will be close to the threshold, and want to plan to keep under (by using spare savings on mortgage overpayments or bringing forward planned purchases\home improvements)

I believe the Halifax reward does count as taxable interest - at present Halifax is actually paying £6.25, but deducting £1.25 in tax. Presumably we get £6.25 from April, see here. http://www.thisismoney.co.uk/money/saving/article-3023407/Could-Halifax-Reward-customers-savings-tax-Budget-giveaway-snaffled.html.

Not sure about the HSBC Save together incentive though

Archi_Bald

HSBC Save Together is quite obviously tax-free interest since it is interest paid in an ISA.

All interest you get outside an ISA counts towards taxable[STRIKE] interest[/STRIKE] income. The actual amount of tax you pay depends on your total income.

Going for tax free interest / legally avoiding to pay tax has not always been the best strategy for some time now. The starkest example is cash ISAs versus current accounts and Regular Savers, where the latter can pay you a multiple of the former, even after you have paid tax on it. Overpaying a 1.99% mortgage when you can get 6% in several Regular Savers is another.

There are several threads on this subject already, worth looking them up.

oldfella

switch incentives are not taxable and the Halifax reward is already taxed

beefturnmail

Oh yes, I forgot the Save Together incentive was paid into an ISA so obviously tax free

oldfella wrote: »

switch incentives are not taxable

I hadn't thought of them either - why are they not taxable?

bowlhead99

beefturnmail wrote: »

I hadn't thought of them either - why are they not taxable?

They are cash back offered on a product or service you've bought.

They are not a type of investment income.

If you were a company or a business paying tax on your annual trading profit, they would impact your profit and thus your tax bill.

As an individual though, you don't pay tax on your "annual profits", of running your life, only on specified types of income or gain, or partnership/ sole trader business trading profits.

So the costs you pay for goods and services as an individual doesn't go anywhere near your UK personal tax computation.

Ed-1

beefturnmail wrote: »

I agree it would be helpful to have clarity on this as I will be close to the threshold, and want to plan to keep under (by using spare savings on mortgage overpayments or bringing forward planned purchases\home improvements)

I believe the Halifax reward does count as taxable interest - at present Halifax is actually paying £6.25, but deducting £1.25 in tax. Presumably we get £6.25 from April, see here. http://www.thisismoney.co.uk/money/saving/article-3023407/Could-Halifax-Reward-customers-savings-tax-Budget-giveaway-snaffled.html.

Not sure about the HSBC Save together incentive though

Reward payments aren't interest. They fall outside the TDSI (Tax Deduction Scheme for Interest) which will stop having tax deducted and so reward payments (classed as 'annual payments' by HMRC) will continue to be taxed and so the reward will not be paid at £6.25.

bowlhead99

Ed-1 wrote: »

Reward payments aren't interest. They fall outside the TDSI (Tax Deduction Scheme for Interest) which will stop having tax deducted and so reward payments (classed as 'annual payments' by HMRC) will continue to be taxed and so the reward will not be paid at £6.25.

To avoid any confusion, Ed's talking there about Halifax committing to send you a fiver a month just for holding an account and unrelated to the amount of money in the account - a fixed 'annual payment' (albeit, dripped monthly) rather than interest. Tax is deducted at source like it would be on royalties etc.

A one off switching incentive that doesn't recur year after year is not an annual payment as it doesn't meet the criteria, hence no tax deducted on those.

See the hmrc manual reference

http://www.hmrc.gov.uk/manuals/saimmanual/SAIM9120.htm

bigfreddiel

Just include anything titled as INTEREST on your statements, if it's not defined as INTEREST it's not!

How hard can it be?

Have a NISA day!

Cheers fj