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Tax on interest

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Comments

  • diystarter7
    diystarter7 Posts: 5,202 Forumite
    1,000 Posts First Anniversary Name Dropper
    RG2015 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.
    Thats what we do as all of our money is joint, the main bulk of it. Both are 20% tax but children are now 40% and I think they have a 500 quid zero tax allowance.
  • RG2015
    RG2015 Posts: 6,082 Forumite
    Ninth Anniversary 1,000 Posts Name Dropper Photogenic
    RG2015 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.
    Thats what we do as all of our money is joint, the main bulk of it. Both are 20% tax but children are now 40% and I think they have a 500 quid zero tax allowance.
    Therefore if you earn £2,000 interest all in a joint account in a single tax year, you will not pay any tax.
  • Dazed_and_C0nfused
    Dazed_and_C0nfused Posts: 18,122 Forumite
    10,000 Posts Fifth Anniversary Name Dropper
    edited 19 June 2022 at 9:49AM
    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.
    The first thing you need to do is, ignoring the savings nil rate band for interest, check if the interest would otherwise put you in the higher rate bracket.

    For example £30k + £1,250 = basic rate payer

    £49,500 + £1,250 = higher rate payer

    If you are a basic rate payer then the tax payable would be £50
    £1,000 x 0%
    £250 x 20%

    If you are deemed a higher rate payer the tax payable (in the example above) would be £246.
    £500 x 0%
    £270 x 20%
    £480 x 40% 


    If this is the first time you would be liable on interest and the £1,250 was for 2022:23 then the tax would normally be collected via your 2024:25 tax code.

    The banks/savings institutions should report the interest to HMRC by 30 June 2023 and in the summer/autumn of 2023 HMRC will update your 2023:24 tax code to start collecting any tax due for that year (2023:24).

    They will also issue a calculation during the 2023:24 tax year showing the tax owed for 2022:23 and will usually collect that amount via the following years tax code (2024:25).

    All the above assumes you aren't Scottish resident for tax purposes and don't need to complete a Self Assessment for any reason.
  • jaypers said:
    There can be reasons to settle any outstanding tax as a lump sum payment rather than via your tax code. All gets a bit complex and depends on personal income and circumstances but a reduction in personal allowance can have other consequences. 
    I would much rather have it this way.

    This messing with my tax code, and subsequently therefore, my monthly income, really interferes with my monthly budget.

    Would much rather HMRC say, this is how much tax you owe on your interest and give me the facility to settle that tax bill then and there and get on with my life.

    But then, my interest is paid annually and not required as income, so I am fortunate enough to be able to put a slice away to cover any tax bill.
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