Interest on savings

Gramski

I was made redundant a couple of years ago and have been living off my wife’s income and my savings since then. Next year I will qualify for my state pension and a two other pensions giving me around £12000 pa. At the moment I have about £118000 savings in fixed rate bonds averaging around 2.5% interest gross. Presently, this interest is tax free, given that I have no other income. My question is, will I have to pay interest on my savings given that my pension income will be slightly more than my allowance of £11850. I am aware that the first £1000 interest on savings is tax free.

eskbanker

There is also a £5K 0% starting rate for savings applicable to low earners, so in general you can earn up to £17,850 before paying tax if it's the right mix of earned and savings income.

Further details at http://www.taxvol.org.uk/about-tax/entitled-10-band-savings-interest/ and https://www.litrg.org.uk/tax-guides/other-tax-issues/savings-and-tax.

Dazed_and_confused

There is no tax free "allowance" for taxable savings interest.

In your situation you are unlikely to be able to use the Personal Savings Allowance tax rate (upto £1,000 interest taxed at 0%) but will benefit from the savings starter rate band which allows up to £5,000 savings interest to be taxed at 0%.

If your pension income is £12,000 in the 2018:19 tax year and the Personal Allowance and tax rates and bands remains the same as they are now then you would be taxed as follows,

Pensions £12,000 - £11,850 = £150 x 20%
First £4,850 savings interest taxed at the savings starter rate of 0%
Next £1,000 savings interest taxed at the Personal Savings Allowance rate of 0%

This all assumes you haven't applied for Marriage Allowance.

RG2015

HMRC give some very useful information on the link below.

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

This includes the following:

Your allowance for earning interest tax-free is made up of the following:

Personal Allowance
starting rate for savings - depending on your other income
Personal Savings Allowance - depending on your Income Tax band
You get this allowance each tax year. The tax year runs from 6 April to 5 April the following year.

It is rather confusing that whilst there is an "allowance for earning interest tax-free" the is no tax free "allowance" for taxable savings interest.

colsten

Gramski wrote: »

My question is, will I have to pay interest on my savings

I am afraid, that question makes no sense. Presumably you are asking whether you have to pay tax on your savings?

Under current legislation, you don't have to pay tax on your savings. Only interest on savings counts as taxable income - but as a BR tax payer, which you are likely to be, your tax rate on the first £1,000 of interest is 0%.

This may change in future - check each and every Budget for any announcements. We might even get a government which taxes actual savings as they might consider people with savings to be 'rich', and there is lots of talk about 'taxing the rich a bit more'.

kidmugsy

colsten wrote: »

We might even get a government which taxes actual savings as they might consider people with savings to be 'rich', and there is lots of talk about 'taxing the rich a bit more'.

If they start killing the kulaks then a small wealth tax might be the least of their worries.

Uxb

colsten wrote: »

This may change in future - check each and every Budget for any announcements. We might even get a government which taxes actual savings as they might consider people with savings to be 'rich', and there is lots of talk about 'taxing the rich a bit more'.

Ah!
You and I remember the days of investment income surcharge tax from the 1970's.
An additional tax of 15% on top of any existing tax for those people who actually were so 'rich' etc to have any savings and investment income other than their simple employment based income.
I think it was charged all savings/investment income.
As it was applied on top of existing tax rates as a further tax on tax the net effect was that for higher rate taxpayers paying at the very top rate of 75% tax it brought their marginal tax rate to 90%.

Tom99

Uxb wrote: »

Ah!
You and I remember the days of investment income surcharge tax from the 1970's.
An additional tax of 15% on top of any existing tax for those people who actually were so 'rich' etc to have any savings and investment income other than their simple employment based income.
I think it was charged all savings/investment income.
As it was applied on top of existing tax rates as a further tax on tax the net effect was that for higher rate taxpayers paying at the very top rate of 75% tax it brought their marginal tax rate to 90%.

From 1974 - 1979 it was 83% + 15% = 98%

Sea_Shell

Tom99 wrote: »

From 1974 - 1979 it was 83% + 15% = 98%

:eek::eek::eek:

Gramski

Thanks for that. Indeed I have claimed the marriage allowance. Should I cancel this before I start getting income from my pensions?

Gramski

Yes, indeed, I did mean to say tax on the interest of my savings.