Tax on Savings Interest

RG2015

ranciduk said:

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?

I understand that, in this example, no income tax will be payable on the interest (unless taxable income exceeds £17,310, as per Dazed_and_C0nfused).

However, if the figures are at a level where tax is payable on the interest, will HMRC do all the work and contact the tax payer?

ranciduk

Ok I think I got it

thanks guys

TBC15

If you are in receipt of the Marriage Allowance how does this affect the amount of tax free interest available to both parties?

Dazed_and_C0nfused

TBC15 said:

If you are in receipt of the Marriage Allowance how does this affect the amount of tax free interest available to both parties?

It only impacts the applicant.

The applicant has a lower Personal Allowance so their figures would be,

Personal Allowance £11,310

Savings starter rate (0%) upto £5,000

Savings nil rate (0%) £1,000 for basic rate payers

The recipient of Marriage Allowance has the standard Personal Allowance of £12,570 and gets a deduction of £252 off whatever their tax liability is.

t0rt0ise

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?

You sit and wait. I had this one year and they sent me a letter and I paid it through my bank account as instructed.  I checked it was correct first by asking for details of the interest they thought I'd had. It was roughly correct.

They then assumed that I'd get the same taxable interest the following year and changed my tax code accordingly.  As that wasn't true, I called them and told them I wouldn't need to pay tax on savings any more, they believed me and gave me the normal tax code. 

305_15

I think that what ranciduk is trying to get to the bottom of is: 
Would she get a rollicking from HMRC for not contacting them after knowingly exceeding the interest threshold, and can she tell them to "shove it" if they actually do try to shift responsibility?

RG2015

t0rt0ise said:

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?

You sit and wait. I had this one year and they sent me a letter and I paid it through my bank account as instructed.  I checked it was correct first by asking for details of the interest they thought I'd had. It was roughly correct.

They then assumed that I'd get the same taxable interest the following year and changed my tax code accordingly.  As that wasn't true, I called them and told them I wouldn't need to pay tax on savings any more, they believed me and gave me the normal tax code. 

I was in a similar position and they were quite happy to accept my figures and increase my tax code.

Bear in mind though that it you end up earning more interest and are liable for tax, then HMRC will claim the tax. It may be two years later when the banks report the actual interest to HMRC.

Dazed_and_C0nfused

305_15 said:

I think that what ranciduk is trying to get to the bottom of is: 
Would she get a rollicking from HMRC for not contacting them after knowingly exceeding the interest threshold, and can she tell them to "shove it" if they actually do try to shift responsibility?

Assuming you mean the £10,000 where registering for Self Assessment is required then you just run the risk of being charged late payment interest if you don't register on time and get a UTR and file your return.

Similar for HICBC and having adjusted net income of £100k or more.

Daliah

If you have know the amount of interest you have to pay tax on, you can update your personal tax account so that your tax code gets adjusted and you pay tax as you go, rather than a lump sum after the end of the tax year
https://www.gov.uk/personal-tax-account

RG2015

Daliah said:

If you have know the amount of interest you have to pay tax on, you can update your personal tax account so that your tax code gets adjusted and you pay tax as you go, rather than a lump sum after the end of the tax year
https://www.gov.uk/personal-tax-account

Two things to note here.

1. This would only apply to previous years and not the current year (as the interest for this year is as yet unknown).

2.  There is no way to correctly update interest received on your personal tax account online.

There is a section for reporting investment income, but the options are either current tax year or next tax year. As these are both unknown, there is nothing that can be updated.

I guess this is just poor form design, but as there is such ambiguity, I am unwilling to enter any figures.

I will continue to inform HMRC by telephone if I believe it is required.