Tax on interest

jenberry

Hi everyone,

Paying tax on savings interest isn't something that is commonly discussed, but I was wondering how one should go about this? I have savings which, in the past have made about £1000 in the past year, and the year before. Would tax have been deducted automatically? I'm confused and don't want to find myself in trouble

Stubod

Up until recently on most standard bank and BS accounts tax was deducted at source at 20%. (ie if you are a basic rate tax payer you did not have to do anything)

However interest is now paid to you "in full", ie without tax being deducted at source by the "provider".....but the government now allows you to earn £1000 per year before you need to pay any tax.

Assuming you are a basic rate tax payer then any interest you earn over £1000 in any tax year should be declared and paid at 20%....(ie if you earn £2000 interest you would have to pay £200). If you earn less than your annual allowance £10,600 ish for this tax year, then you can offset this against any interest......

....at least I think thats right!

Trentenders

Nobody can answer your question. Have you looked at your bank statements to see if tax was deducted?

xylophone

https://www.gov.uk/government/publications/personal-savings-allowance-factsheet/personal-savings-allowance

Pre April 2016 your interest is likely to have been paid net of 20% tax - whether this was just right, not enough or too much depended on your personal situation.

jenberry

Stubod wrote: »

Up until recently on most standard bank and BS accounts tax was deducted at source at 20%. (ie if you are a basic rate tax payer you did not have to do anything)

However interest is now paid to you "in full", ie without tax being deducted at source by the "provider".....but the government now allows you to earn £1000 per year before you need to pay any tax.

Assuming you are a basic rate tax payer then any interest you earn over £1000 in any tax year should be declared and paid at 20%....(ie if you earn £2000 interest you would have to pay £200). If you earn less than your annual allowance £10,600 ish for this tax year, then you can offset this against any interest......

....at least I think thats right!

Thank you. Yes, I'm a basic rate tax payer, earning around £30k. I have always been very vigilant with my bank statements and have never seen any tax being deducted but will pay more attention to this. I am intending to put money in a Peer to peer lending account, so presumably the interest (which is paid at a higher rate than normal savings accounts) will not be deducted automatically. In which case, how would I go about declaring this?

xylophone

https://www.lendingworks.co.uk/blog-post/quick-guide-paying-tax-p2p-income

https://www.gov.uk/personal-tax-account

SteveG787

I read the government factsheet referenced in #4 above and as far as I understand it it says that the banks and building societies (and by extension P2P platforms) will notify HMRC who will alter your tax code to collect the tax on the interest.
In other words for those who don't already fill in Self Assessment you don't need to do anything.

Am I reading this wrongly, is there anything official that contradicts the factsheet?

Dazed_and_confused

Stubod has misled you a little, all interest (ignoring non taxable things such as ISAs) is still taxable and if you need to tell the HMRC about your interest you would declare the full amount, not the amount over £1000.

If you are a basic rate payer (which is established from all income including the interest) then the first £1000 of the interest is taxed at 0%, commonly known as the personal savings allowance, and the rest at 20%.

Higher rate payers have £500 taxed at 0% then pay 40%.

Dazed_and_confused

SteveG787

I've not seen anything to change whats said in the factsheet but if you keep the HMRC up to date then you will already paying the tax over a longer period.

If you wait for the banks to post the details to the HMRC then we'll be halfway through the next tax year before your code gets changed so by then you'll owe money for all of 2016:17 and half of 2017:18 and as the HMRC usually collect tax arrears in the next tax years code you could end paying 2 1/2 years tax in one year :eek: (all of 2016:17, half 2017:18 and all of 2018:19 via your 2018:19 tax code )

SteveG787

Dazed & Confused

Thanks for that, all that never occurred to me, I've only ever paid PAYE, never had to deal with this kind of stuff before. I suspect that a lot of people who've never had to deal with HMRC will have to because of this, many of us will be truly dazed & confused.

Dazed_and_confused

Of course that will be seen as huge advantage by some, why spread paying the tax out evenly starting now if you can manage to pay nothing until April 2018 and finish paying it in March 2019!!