Joint accounts

jscol

My wife and I have a couple of high interest accounts that are joint accounts.

We are in different tax brackets. She pays 20% and I pay 40%.

We're in danger that I might go over the £500 annual limit for not paying tax on interest on overall savings held in my name. Does anyone know how HMRC view interest from joint accounts? I'm assuming they would see it as income split between us for tax purposes and only half the interest from our joint accounts would count towards the £500 limit. Does anyone know if I am correct as I just guessing?

Many thanks.

xylophone

The interest is regarded as half each, yours being treated as that of a higher rate tax payer.

https://www.gov.uk/apply-tax-free-interest-on-savings/previous-tax-years

If you have a joint account with a husband, wife or civil partner you should declare half of the income as yours. The second half counts towards their income.

jscol

Thanks xylophone. Can make plans from here to stay under the limit.

Dazed_and_confused

Don't forget the £500 you get is still all taxable income so although it could be taxed at 0% (PSA rate) you could have to pay extra tax elsewhere by having this savings interest income i.e. it still increases your taxable income so could bump up any child benefit charge or reduce your personal allowance if income is over £100k

bowlhead99

In theory if the cash is in the accounts long term you can declare to HMRC that it is in proportions other than 50/50 which is their base assumption - e.g. it's in line with the proportions in which you had each contributed to the account.

However, putting yourself 'on their radar' by making a declaration of your jointly owned assets being in an unusual split that results in lower tax paid, opens you up to potential investigation which may be unwelcome and you are going to need to keep very careful records of how the money flows in and out of the account(s) over time. It is far easier to just maintain his and hers accounts, with some money in the joint accounts on a standard assumed 50/50 split and then a lot more of the non-joint money in her name than his, to avoid the income tipping him into a higher rate of tax than she could get.