Tax on Savings Interest

fretwej

Both myself and my wife have taken early retirement. My pension gives me about £15k per year, my wife gets only £250 per year. I have utilised the married persons allowance where I have transferred part of my wife’s tax code to mine and this works fine. The problem is that we have enough savings to get about £4K in interest per year before tax and not including ISA interest. With the personal savings allowance for interest set at £1000 per person can I put our savings mostly in my wife’s name so that she gets most of the interest, non-taxable because she will still be only getting a total income of less than £4k including her pension. Is this allowed?

RG2015

No problem, until she runs off with it all .

As it happens, I am in a similar situation and keep giving my wife more and more when I anticipate exceeding my tax threshold.

Dazed_and_confused

Your wife cannot make use of the Personal Savings Allowance (which is actually a 0% tax rate).

As someone who has applied for Marriage Allowance she would need to have taxable income of £16,251 before this became of use to her.

She gets her reduced Personal Allowance of £11,250 and then the savings starter rate of tax whereby another £5,000 interest is taxed at 0%.

In the current tax year you will be liable to tax on £2,500 of your pension income (£15,000 - £12,500).

The first £2,500 of your interest will be taxed at 0% (the savings starter rate left available after taking into account your pension income)

The next £1,000 of your interest (if you have that much) will also be taxed at 0% (the savings nil rate of tax).

Once you have calculated the tax due you can then deduct £250 being the tax credit you are entitled to as a recipient of Marriage Allowance.

RG2015

Based on Dazed and confused's analysis you will pay no tax on interest receipts up to £3,500.

Therefore to legally avoid paying any tax on your interest you could transfer to your wife any savings that are likely to increase you annual interest above £3,500. Based on your estimate of £4k this would be £500 of interest.

If it earns interest at 1.5% this would be £33,333.

£33,333 @ 1.5% pa = £500 interest