Tax on interest

RG2015

What_time_is_it said:

I have savings in joint accounts - some in my name, some in partner's name, and some in joint names. We are both in full-time employment. Do we get £1,000 of interest tax free per year EACH? And how is this applied to interest earned in joint names?

Usually 50% each for a joint account in two names. There is am HMRC page for this for which I will give a link below. 

Look for Interest on Joint Accounts.

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

Edit. If both you and your partner are basic rate tax payers, you will each qualify for the 0% rate on up to £1,000 of interest on savings.

inspectorperez

Dazed_and_C0nfused said:

You don't have a choice, it's set in legislation.

Personal Allowance has to be used first

Then savings starter rate (if available)

And only once those have been exhausted can the savings nil rate be used.

Just to complicate things you can (or HMRC should) allocate the Personal Allowance in such a way as to get the smallest overall liability.

But that's another level of complexity!

Thanks for this clear and precise explanation of a potentially confusing topic

Just by way of further comment, I seem to recall not so very long ago HMRC themselves got confused when dividends were thrown into the melting pot in determining the way this scenario all interacted. The HMRC tax calculation within self assessment was at odds with approved software from other providers.

RG2015

inspectorperez said:

Dazed_and_C0nfused said:

You don't have a choice, it's set in legislation.

Personal Allowance has to be used first

Then savings starter rate (if available)

And only once those have been exhausted can the savings nil rate be used.

Just to complicate things you can (or HMRC should) allocate the Personal Allowance in such a way as to get the smallest overall liability.

But that's another level of complexity!

Thanks for this clear and precise explanation of a potentially confusing topic

Just by way of further comment, I seem to recall not so very long ago HMRC themselves got confused when dividends were thrown into the melting pot in determining the way this scenario all interacted. The HMRC tax calculation within self assessment was at odds with approved software from other providers.

I have just noticed that the link that I included in my previous post also has some details on this issue.

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

Ade99

I'm wondering if someone can try and help me understand the whole tax on savings issue a little better please. I've read up on it but i'm still not clear on it. If I give the below scenario with made up numbers to keep it simple:

Full time employment earning under £50k per year.
£50k in savings on a 1yr fix at 2.5%.
So the Interest earned will be £1,250 gross.

My question is:  Will I pay tax on any of that £1,250 interest or will HMRC just automatically adjust my tax code accordingly?

If I will pay tax on the interest, is it as simple as saying that my Personal Savings Allowance is £1k and I've earned £1,250 in interest so I will pay 20% tax on the £250 that's over my PSA. Therefore £50 tax to pay?

Thanks in advance.

RG2015

Ade99 said:

I'm wondering if someone can try and help me understand the whole tax on savings issue a little better please. I've read up on it but i'm still not clear on it. If I give the below scenario with made up numbers to keep it simple:

Full time employment earning under £50k per year.
£50k in savings on a 1yr fix at 2.5%.
So the Interest earned will be £1,250 gross.

My question is:  Will I pay tax on any of that £1,250 interest or will HMRC just automatically adjust my tax code accordingly?

If I will pay tax on the interest, is it as simple as saying that my Personal Savings Allowance is £1k and I've earned £1,250 in interest so I will pay 20% tax on the £250 that's over my PSA. Therefore £50 tax to pay?

Thanks in advance.

Your savings provider will inform HMRC of the £1,250 interest, and they will amend your PAYE tax code to collect this unpaid tax in the current tax year.

If you receive the interest in the 2022/2023 tax year, it will be reported in about August 2023. Your 2023/2024 tax code will be adjusted and you will start paying extra tax soon after.

You are also correct that the unpaid tax is £50 for 2022/2023, but HMRC will usually assume that you will also receive £1,250 in the following tax year and change that year’s code as well.

libra10

Some great information in this thread.

If savings held in cash ISA's, do you ignore the interest gained on these accounts, or add to other amounts?

Thank you

SarahB16

RG2015 said:

Your savings provider will inform HMRC of the £1,250 interest, and they will amend your PAYE tax code to collect this unpaid tax in the current tax year.

I am currently reviewing my savings and investments and believe tax is payable on savings interest above £500 (not that I have reached that level) for higher rate tax payers which I am.  

Can I check is a similar process followed for higher rate tax payers if their savings interest is above £500, i.e. the PAYE tax code is amended to collect the unpaid tax.  I just wish to check that a tax return is not required? 

Or what level of savings interest does a higher rate tax payer need to reach before they would need to submit a self assessment tax return? 

Thank you 

2010

libra10 said:

Some great information in this thread.

If savings held in cash ISA's, do you ignore the interest gained on these accounts, or add to other amounts?

Thank you

Ignore, they are tax free.

RG2015

SarahB16 said:

RG2015 said:

Your savings provider will inform HMRC of the £1,250 interest, and they will amend your PAYE tax code to collect this unpaid tax in the current tax year.

I am currently reviewing my savings and investments and believe tax is payable on savings interest above £500 (not that I have reached that level) for higher rate tax payers which I am.  

Can I check is a similar process followed for higher rate tax payers if their savings interest is above £500, i.e. the PAYE tax code is amended to collect the unpaid tax.  I just wish to check that a tax return is not required? 

Or what level of savings interest does a higher rate tax payer need to reach before they would need to submit a self assessment tax return? 

Thank you 

According to HMRC you need to report interest above £10,000.

See the information on the link below.

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

https://www.gov.uk/check-if-you-need-tax-return

Olinda99

RG2015 said:

Dazed_and_C0nfused said:

You don't have a choice, it's set in legislation.

Personal Allowance has to be used first

Then savings starter rate (if available)

And only once those have been exhausted can the savings nil rate be used.

Just to complicate things you can (or HMRC should) allocate the Personal Allowance in such a way as to get the smallest overall liability.

But that's another level of complexity!

Thank you, and I do understand, but it feels like semantics.

Most people with income less than £17,570, are probably not concerned whether they use their savings nil rate or their savings starter rate.

All that matters is that they don’t pay any tax on their savings interest.

It doesn't matter now because the starter rate is currently set at 0%. However, it used to be 10% and could theoretically be set at a rate above 0%

The nil rate band, on the other hand, is always - well, nil.