How do I pay tax on NS&I gross interest?

rathernot

I'm a PAYE employee, higher rate.

If I put money in any NS&I product that pays interest the interest is paid gross.

All my other savings are either in ISA's or a form where I get pennies in interest so taxation on it isn't an issue.

If I open an NS&I account (or any other non ISA wrapped account) what's the process to pay tax on the interest I'm paid?

alanq

Declare the interest in your tax return and HMRC will either adjust your future tax code or ask you to make a lump sum payment to pay the tax due.

eskbanker

Remember also that the Personal Savings Allowance means that up to £500 (for higher rate taxpayers) of taxable (i.e. non-ISA) savings interest is taxed at 0%, so you only have an issue if your aggregate returns exceed this.

Dazed_and_confused

eskbanker

True for most but plenty will still have extra tax to pay, for example High Income Child Benefit Charge will increase even if 0% tax is due on the savings interest.

Likewise Personal Allowance could be reduced further for those earning over 100k and Married Couples Allowance would be reduced.

eskbanker

Dazed_and_confused wrote: »

eskbanker

True for most but plenty will still have extra tax to pay, for example High Income Child Benefit Charge will increase even if 0% tax is due on the savings interest.

Likewise Personal Allowance could be reduced further for those earning over 100k and Married Couples Allowance would be reduced.

Likewise, true - I was addressing OP's specific question about paying tax on the interest but yes, it is plausible that an increase in income could have other effects....

rathernot

Thanks all, feel a little stupid asking but it's one of those things where if you've never had to do a tax return I wasn't sure if the answer was that

rathernot

Right next embarrassing question but I want to be sure.

Let's say I make £1000/year interest and I'm a higher rate tax payer.

Am I correct that:

My personal allowance is £500

£1000 - £500 = £500 that has to have tax paid on it @ 40% so of the original £1000 I keep £800?

RG2015

Yes, see the link below.

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

ValiantSon

rathernot wrote: »

Thanks all, feel a little stupid asking but it's one of those things where if you've never had to do a tax return I wasn't sure if the answer was that

You don't have to do a tax return. The banks are supposed to inform HMRC of the interest earned and HMRC will adjust your tax code (or possibly request payment of tax due) if you exceed your allowance.

Tom99

rathernot wrote: »

Right next embarrassing question but I want to be sure.

Let's say I make £1000/year interest and I'm a higher rate tax payer.

Am I correct that:

My personal allowance is £500

£1000 - £500 = £500 that has to have tax paid on it @ 40% so of the original £1000 I keep £800?

[FONT=Verdana, sans-serif]Out of interest what tax will you pay if in 2017-18 if your salary is £44,500 and you have £1,000 interest.

[/FONT] [FONT=Verdana, sans-serif]£44,500+£1,000=£45,500 so higher rate tax payer and £500 interest is taxable.

[/FONT] [FONT=Verdana, sans-serif]But since you still have £500 headroom above your salary before hitting the £45,000 threshold would you only pay 20% tax on the £500?

[/FONT] [FONT=Verdana, sans-serif]ie you are a higher rate taxpayer but you don't pay any tax at 40%?[/FONT]

dont_use_vistaprint

I'm thinking its probably worth looking at salary sacrifice to invest more in a pension if your earnings are between £50K & £100K - would that be right ?

Especially if you have children under 19, as after £60K you lose all child benefit now and your kids get the minimum student maintenance loan, so bringing income down has some benefits.

Are there any other similar practical things to do to reduce tax in that range for PAYE , PAYE + small consultancy income on tax return (i.e not Ltd)