Tax on Savings Interest

Dazed_and_C0nfused

ranciduk said:

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?

If your interest is less than £10,000 and you don't complete Self Assessments return for any other reason then HMRC will calculate the tax due and send you a Simple Assessment calculation. 

And you then get a minimum of 3 months before you have to pay it.

https://www.gov.uk/check-simple-assessment

If your interest is £10,000 or more you will be required to complete a Self Assessment return and pay the tax due by 31 January after the end of the tax year in question.

MalMonroe

Hi, and just for fun, this is what the government says about tax on savings interest -

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

ranciduk

So for example..

im no longer working

i earn £1500 in interest in one tax year 

so £500 is taxable?

so what happens? HMRC write to me and tell me I need to somehow pay them tax for the £500 I went over?

i don’t need to contact anyone myself - HMRC do all the work and contact me?

Dazed_and_C0nfused

You've totally misunderstood.

£1,500 is taxable.

The tax payable will depend on what other taxable income you have.

Most people can have taxable income of £17,310 before any tax is payable on interest.

You use these in the following order,

Personal Allowance

Savings starter rate band (0%)
Savings nil rate band* (0%)

*aka Personal Savings Allowance 

ranciduk

I thought if I got £1000 in interest in a year there’s no tax to pay?

so if I got £1500 - I have to pay tax on the £500?!

Dazed_and_C0nfused

ranciduk said:

I thought if I got £1000 in interest in a year there’s no tax to pay?

so if I got £1500 - I have to pay tax on the £500?!

You have presumably read some dumbed down article/website.

No one usually has to pay tax on savings interest unless they have taxable income in excess of £17,310.  And this is increased to £18,570 if you haven't applied for Marriage Allowance.

You cannot use the savings nil rate band (aka Personal Savings Allowance) until you have used the Personal Allowance and, where available, the savings starter rate band.

How much taxable earnings, self employment, rental income, taxable benefits or pension income do you expect to have in this tax year?

BACKTOBACK

If it helps anyone regarding Chase, i have just been on the chat service. The customer service is excellent but they did confirm very strict daily transfer limits of £25k
So it would take me 9 days to get my money out, probably longer as i suspect they would freeze the account before day 9 
So now i am looking for another account to put at least half the money in

ranciduk

Dazed_and_C0nfused said:

ranciduk said:

I thought if I got £1000 in interest in a year there’s no tax to pay?

so if I got £1500 - I have to pay tax on the £500?!

You have presumably read some dumbed down article/website.

No one usually has to pay tax on savings interest unless they have taxable income in excess of £17,310.  And this is increased to £18,570 if you haven't applied for Marriage Allowance.

You cannot use the savings nil rate band (aka Personal Savings Allowance) until you have used the Personal Allowance and, where available, the savings starter rate band.

How much taxable earnings, self employment, rental income, taxable benefits or pension income do you expect to have in this tax year?

Yep all this is clearly going way over my head but thanks for trying!

can you answer me one last question as this is all I really want to know:-

if I ever earn so much interest in one tax year that I am required to pay some tax on it - do I need to do anything myself? Is it up to me to contact someone?

or do I just sit and wait for a letter in the mail saying I need to cough up some dough?

Mr.Saver

Albermarle said:

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..... 

This is a choice between
A. a small but sure loss; and
B. an uncertain situation where you could either lose or gain much more.

The magnitude of potential lose in option B is much much higher than A, and there's also a decent chance of it happening. One should only take option B if the money is not critical. I.e. they can afford to lose a big chunk of it.

In OP's situation, they have a very low paid job, and completely relying on this money to buy a property. It's very unwise to gamble with it.

However, it could become a valid risk preference choice for another person in a different financial situation. Let's say someone who has a stable 200k per annual salary and recently received the same inheritance money, and the person is looking to buy the same property as OP. In this case, it's not unreasonable for them to invest the money, as long as they are willing to take the risk and can stomach the worst possible outcome.

Dazed_and_C0nfused

ranciduk said:

Dazed_and_C0nfused said:

ranciduk said:

I thought if I got £1000 in interest in a year there’s no tax to pay?

so if I got £1500 - I have to pay tax on the £500?!

You have presumably read some dumbed down article/website.

No one usually has to pay tax on savings interest unless they have taxable income in excess of £17,310.  And this is increased to £18,570 if you haven't applied for Marriage Allowance.

You cannot use the savings nil rate band (aka Personal Savings Allowance) until you have used the Personal Allowance and, where available, the savings starter rate band.

How much taxable earnings, self employment, rental income, taxable benefits or pension income do you expect to have in this tax year?

Yep all this is clearly going way over my head but thanks for trying!

can you answer me one last question as this is all I really want to know:-

if I ever earn so much interest in one tax year that I am required to pay some tax on it - do I need to do anything myself? Is it up to me to contact someone?

or do I just sit and wait for a letter in the mail saying I need to cough up some dough?

There are 3 scenarios where your interest could mean you have to register for Self Assessment with HMRC.

1.  The interest is £10,000 or more

2.  You become liable to the High Income Child Benefit Charge (your adjusted net income exceeding £50,099)

3.  Your adjusted net income exceeds £100,000.