Tax on Savings Interest

EthicsGradient

Daliah said:

eskbanker said:

Bigwheels1111 said:

No tax taken, your income plus savings interest should be about £10,317.00.
So take off the tax free savings allowance of £1000.
Leaving £9317.00.
As this is below your tax code of £12500. You will pay nothing in tax and nothing to reclaim.

That's not how it actually works - if total income is below the personal tax allowance of £12,570 then the personal savings allowance doesn't come into play (and is a nil-rate band of taxable income anyway, rather than literally a tax-free allowance), but the net result is the same, i.e. no tax to pay!

The total income is not likely to be below £12,570 though, as the OP says they have an income of £7,155. It obviously depends on how long they will be keeping the money in Chase (or other savings account).

If the total income is below £17,570, they might be eligible for the starting rate for savings . If not, they will get £1,000 of the savings interest tax free, and the rest will be taxable at 20%.

In common with other banks, Chase will not deduct tax but will report the interest payments to the HMRC. OP can discuss with the HMRC whether to pay the tax due in a lump sum, or have it deducted through their PAYE code. https://www.gov.uk/apply-tax-free-interest-on-savings

1.5% from Chase on £210,000 is £3,150 per year, so the total would still be under £12,570. If interest rates went up a lot, they could exceed that, but that's just hypothetical - and, as you say, after that the starting rate for savings would still mean their tax would be zero.

Albermarle

Bravepants said:

BACKTOBACK said:

My longer term plan is to buy a house. But i am not rushing. It might take 2 months or 12 months to find the right property.
I am worried about inflation.
I am open to any better investment ideas considering i would need quick access to the money?

If you intend to use the money in less than 5 years then stick to savings not investments.

We all know that the minimum recommended time for investments is 5 years, preferably longer .
However I wonder with cash savings maybe losing 15% in 3 years , almost guaranteed , whether the balance of risk starts to move in favour moving some cash into investments on say a 3 year time frame?
Risky of course, but so is leaving a lot of money in cash for extended periods in the current situation . Difficult dilemma..... 

BACKTOBACK

I have just read on another MSE thread 'chase current account warning' that for the current account they have 25k faster payment limit. The thread also says Chase does not support CHAPS payments.
Although my money is in the savings account and not a current account is it going to be a problem when i need to transfer over £200k to a solicitor for a house purchase? Or even move £100k in 6 months time to another savings account due to fscs protection?

Daliah

BACKTOBACK said:

I have just read on another MSE thread 'chase current account warning' that for the current account they have 25k faster payment limit. The thread also says Chase does not support CHAPS payments.
Although my money is in the savings account and not a current account is it going to be a problem when i need to transfer over £200k to a solicitor for a house purchase? Or even move £100k in 6 months time to another savings account due to fscs protection?

As it stands, it seems you would have to transfer your money over a number of days.

Probably not an issue for most people, especially if they keep to the £85K FSCS limit.

djpailo

People keep saying HMRC are informed of your savings and work out whether you need to pay tax on interest, but always fall short of saying what that practically means. 

How does HMRC actually "inform" you that you need to pay tax on savings? Do they simply send a letter home and say "you owe X amount of tax due to exceeding your personal allowance for interest?". Do you have to call HMRC? The latter seems unrealistic to me, particularly if one holds multiple products across different banks. 

RG2015

djpailo said:

People keep saying HMRC are informed of your savings and work out whether you need to pay tax on interest, but always fall short of saying what that practically means. 

How does HMRC actually "inform" you that you need to pay tax on savings? Do they simply send a letter home and say "you owe X amount of tax due to exceeding your personal allowance for interest?". Do you have to call HMRC? The latter seems unrealistic to me, particularly if one holds multiple products across different banks. 

HMRC will write informing you that you have underpaid income tax, with details of their calculation. They will either ask you to pay them, or more likely amend your tax code so they can collect the unpaid tax via PAYE.

If you disagree with their value of total savings income received, you can ask them for a detailed breakdown.

I have done this, and got details over the phone and also in the post.

Daliah

djpailo said:

People keep saying HMRC are informed of your savings and work out whether you need to pay tax on interest, but always fall short of saying what that practically means. 

How does HMRC actually "inform" you that you need to pay tax on savings? Do they simply send a letter home and say "you owe X amount of tax due to exceeding your personal allowance for interest?". Do you have to call HMRC? The latter seems unrealistic to me, particularly if one holds multiple products across different banks. 

It tells you here what will happen

phillw

BACKTOBACK said:

is it going to be a problem when i need to transfer over £200k to a solicitor for a house purchase? Or even move £100k in 6 months time to another savings account due to fscs protection?

That is something only you can answer.

If chase still doesn't support CHAPS in three months time, or hasn't increased the £25k a day limit, then is that going to be a problem for you?

Have you contacted Chase customer support to see what they say?

ranciduk

djpailo said:

People keep saying HMRC are informed of your savings and work out whether you need to pay tax on interest, but always fall short of saying what that practically means. 

How does HMRC actually "inform" you that you need to pay tax on savings? Do they simply send a letter home and say "you owe X amount of tax due to exceeding your personal allowance for interest?". Do you have to call HMRC? The latter seems unrealistic to me, particularly if one holds multiple products across different banks. 

Thanks for asking this

ive always wondered!

what happens if you need to be taxed on interest- but you no longer work I.e. don’t pay any income tax?

eskbanker

ranciduk said:

what happens if you need to be taxed on interest- but you no longer work I.e. don’t pay any income tax?

Income tax is calculated based on your total taxable income, including earnings, interest and dividends, so if these fail to meet the relevant thresholds then there won't be anything to pay, otherwise they advise what's needed to settle up....