Over £1000 in savings interesr tax question

Daniel1646

Hi all

I have started reshuffling my savings around to make them work for me instead of sitting there doing nothing. I understand i have the first £1000 of savings interest is tax free but if it turns out i end up earning more than the £1000 does my tax code automatically change to pay the correct tax or do i have to contact the tax office and pay separately ?
Years ago i had an account that didn't take tax off and i contacted them and paid the tax via cheque but it turned into a nightmare as they lost the cheque and again they tried asking me for the money I'd already paid then somebody else said they didn't know why i had been asked again as everything was fine. All this after spending 30 mins in a queue to speak to them.

Regards

Dan

xylophone

http://www.taxvol.org.uk/about-tax/entitled-10-band-savings-interest/

Dazed_and_confused

Do you expect to have non savings income (taxable wages, pension business profits rents etc) greater than £17,500 in 2019:20?

If not you cannot immediately make use of the savings nil rate (aka PSA).

You have to use your Personal Allowance and the savings starter rate of tax before the £1,000 savings nil rate applies.

Your tax code would normally be adjusted to collect any tax owed however you can pay this direct if you prefer.

jscol

Would using an ISA help your situation?

Dazed_and_confused

Potentially, but you need to weigh up the interest rate and tax implications.

For most people an ISA paying say 1.25% won't be as good a return overall as a normal account paying say 1.8%.

But the current 0% tax rates may be be around forever so maybe getting money in a tax exempt wrapper has long term benefits for some people.

polymaff

Dazed_and_confused wrote: »

But the current 0% tax rates may be be around forever so maybe getting money in a tax exempt wrapper has long term benefits for some people.

May not be around ?

polymaff

Daniel1646 wrote: »

I have started reshuffling my savings around to make them work for me instead of sitting there doing nothing. I understand i have the first £1000 of savings interest is tax free but if it turns out i end up earning more than the £1000 does my tax code automatically change to pay the correct tax or do i have to contact the tax office and pay separately ?
Years ago i had an account that didn't take tax off and i contacted them and paid the tax via cheque but it turned into a nightmare as they lost the cheque ..

You often have a choice as to whether your PAYE code is used to collect the tax or you settle directly - although there is a limit to how much HMRC may take by adjusting your PAYE code. If you choose to settle, though, a) do it before the due date, and b) as HMRC recommend, "pay any tax you owe electronically".

As you've discovered, paying tax by cheque is a mug's game.

As for the amount of taxable savings income that gets taxed at 0% - it varies from zero to getting on for £20k depending on your circumstances - which, at present, only you know !

Ian25

My mother is in her 80's and her income until late last year came from a state pension of around 4k.
My father has now passed away, so now with an enhanced state pension and a % of Dad's work pension from April 6th she will be a tax payer.
They have been fortunate to accrue some capital so mother has a tax coding notice which says she (correctly) earned more than £1,000 of untaxed, non ISA interest according to HMRC's latest figures. This obviously impacts going forward on her tax free pay.

My question is this - as her income has been below the tax free threshold (and will be again for 2018-19), does she have to pay tax on the interest over £1000 ? It doesn't seem right to do so.

Thanks

Dazed_and_confused

If her Personal Allowance has been used up by the pension income then her savings interest will have to be taxed now.

But depending on exactly how much her pension income is she could still have nearly £6,000 interest which could be taxed, currently, at a 0% tax rate.

If her pension income reaches £17,500 then she will just have the savings nil rate of upto £1,000 taxed at 0%.

If you say what her total pension income is expected to be in 2018:19 and 2019:20 and how much taxable interest you think she will receive in each year then it will be possible to give you an idea of how much extra tax she might have to pay because of the savings interest.

Why do you think your mother should be exempted from paying tax on her interest? Has she considered making her interest tax exempt by using ISA's? Remembering of course it can be better to get a higher interest rate and pay some tax rather than get a poor interest rate on an ISA.

polymaff

Again, difficult to comment when only you know the full position. I wasn't joking when I wrote that taxable savings income taxed at 0% can vary from 0 to getting on for £20k. Having a savings income - an inherited savings income? - of more than £1,000 is definitely a minority position, so you'll need to tell more.

newatc

I moved money from Cash ISAs to Standard Cash deposits sometime ago as the rates were higher even allowing for the fact that I would pay tax on amounts of interest over £1000.
I'm now reversing that decision because HMRC can't seem to cope with the system and keep getting my details incorrect which leads to overpayment of tax (although I assume that will self correct eventually) and me spending valuable time trying to sort it out.
So my aim will be getting my taxable savings interest below £1000. Crazy but sanity costs <s>.