Savings Account - Tax

lkalka

Hi,

A quick question about tax on a savings account.

We are selling our house and going into rented for a while therefore we have a lump sum that we need to 'invest'.

We are going to put it into Bank Of Scotland instant access saver paying about 6.3 (I know we could get slightly higher but I prefer to stick to one of the 'safer'! banks).

I am a higher rate tax payer but my wife isn't.

Should I just open the account in my wifes name or can I open it 'joint' names but put my wife as the 'primary' person on the acount. If I do it that way will it count as earnings against my wife or 'jointly'. I'm obviously trying to avoid paying 40% tax on my savings.

Thanks for any help.

I just found this thread
http://forums.moneysavingexpert.com/showthread.html?t=792
it looks like it needs to be in my wifes name.

Paradise_Found

lkalka wrote: »

I am a higher rate tax payer but my wife isn't.

Ditto!

Should I just open the account in my wifes name or can I open it 'joint' names but put my wife as the 'primary' person on the acount. If I do it that way will it count as earnings against my wife or 'jointly'. I'm obviously trying to avoid paying 40% tax on my savings.

When I asked this question myself a couple of years ago,
I was told that half the balance would be taxed at 20%,
and the other at 40%, so all our savings are now in my wife's name!

hope this helps,


~ MARK ~

john3:16

Presumably you will also be utilising your Cash ISA allowances (£3000 each per tax year)? Not a lot compared to your full lump sum perhaps but it will help esp. if you are holding onto the cash for a while.

Regards
Gerry

Debt_Free_Chick

lkalka wrote: »

Should I just open the account in my wifes name or can I open it 'joint' names but put my wife as the 'primary' person on the acount. If I do it that way will it count as earnings against my wife or 'jointly'. I'm obviously trying to avoid paying 40% tax on my savings.

Under self assessment, you have to declare the interest on your share of any joint savings. If the account is in joint names, then obviously you have a share and you have to declare the interest on that share. If you can prove that you own less than 50% of the savings and therefore 50% of the interest, you should be OK declaring the part you own - if HMRC challenge you.

The alternative, as you've found, is to put the account in your wife's name. Effectively, though, you are gifting her your share of the savings - it becomes HER money

mrkbrrws

Debt_Free_Chick wrote: »

If you can prove that you own less than 50% of the savings and therefore 50% of the interest, you should be OK declaring the part you own - if HMRC challenge you.

I don't think joint bank accounts can be held any other way than both having equal entitlement to all the money in the account.

simonleblank

OK as long as your wife does not run off with her secret lover!

mrkbrrws

I agree that this is possibly technically complex and as http://www.hmrc.gov.uk/manuals/inmanual/in154.htm indicates the simple solution is normally the way to go:-

"If a married couple or civil partners want to hold money in bank accounts or building society accounts on an unequal basis, they will usually hold separate accounts."

Debt_Free_Chick

mrkbrrws wrote: »

I don't think joint bank accounts can be held any other way than both having equal entitlement to all the money in the account.

Certainly the bank will treat both parties as jointly and severally liable. But it's entirely possible for one party to have contributed more than the other e.g. I put in £4k, you put in £1k.

Now, if I were a higher rate taxpayer and you a basic rate, you wouldn't want to be taxed on half the interest when, strictly, you only received 25% of it.

It works the other way too. I put in £5k, but you don't pay tax. I don't want the interest on my return and want you to reclaim the 20% deducted by the bank. I am going to need to convince HMRC that all the money in this joint account - and the interest earned on it - is yours, not mine.

Except one doesn't need to "prove" this for completing the tax return - but be sure you can, if HMRC challenge it!

HTH

lkalka

Thanks for all the replys, I've only just checked back to the thread...so I didn't realise so many people had replied.

I will put the money in my wifes name.....I'll just tell her to not to tell her secret lover about it