Tax on interest

ll2000

Hi,

I am in the very lucky position to expect to max out on my tax free personal savings allowance this year, so I will need to pay tax on any interest I earn in my savings account above the limit. 

I won’t be going far above the interest free limit, but certainly will go over. 

I have been avoiding adding to my savings account and going over the limit for fear of what this might to do my tax code and whether I would just be giving myself a headache (for example, paying too much tax and having to claim it back) for the sake of not very much more interest. 

I just wondered if anyone can give me advice or thoughts?

(I know there are other tax free ways of saving, I’m not looking for advice there.)

Thank you. 

Will. 

RG2015

In my opinion, it's not really a problem.

If you are a basic rate tax payer, earning more than £17,570, (see HMRC link below for more details on this.) then your tax could be as follows.

Interest received £1,200.

£1,000 taxed at 0%
£200 taxed at 20%, so you will pay £40 in tax.

You talk about "fear of what this might to do my tax code and whether I would just be giving myself a headache".

This sounds like a psychological concern rather than a financial one. From a financial perspective, you will earn £1,180 after paying tax of £40.

Yes, it is just me, but I do not see this any more of a problem than paying income tax on a monthly salary..


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

diystarter7

RG2015 said:

In my opinion, it's not really a problem.

If you are a basic rate tax payer, earning more than £17,570, (see HMRC link below for more details on this.) then your tax could be as follows.

Interest received £1,200.

£1,000 taxed at 0%
£200 taxed at 20%, so you will pay £40 in tax.

You talk about "fear of what this might to do my tax code and whether I would just be giving myself a headache".

This sounds like a psychological concern rather than a financial one. From a financial perspective, you will earn £1,180 after paying tax of £40.

Yes, it is just me, but I do not see this any more of a problem than paying income tax on a monthly salary..


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

Not the case if the OP is a 40% taxpayer.

Dazed_and_C0nfused

As @RG2015 post explains it's relatively straightforward.

If you are talking about interest to be received in the current tax year then you are unlikely to notice any change until this time next year, at the earliest.

You will get a tax calculation for 2022:23 showing the tax due.  This will normally be collected by a reduced tax code for the 2024:25 tax year.

At a similar time you will also get an amended tax code for 2023:24 to collect additional (estimated) tax due for 2023:24.  This may be too much.  It might not be enough.  But if is purely an estimate based on the interest you received in the prior tax year (2022:23).

The actual position for 2023:24 will be finalised the following summer.

https://www.gov.uk/tax-overpayments-and-underpayments

RG2015

diystarter7 said:

RG2015 said:

In my opinion, it's not really a problem.

If you are a basic rate tax payer, earning more than £17,570, (see HMRC link below for more details on this.) then your tax could be as follows.

Interest received £1,200.

£1,000 taxed at 0%
£200 taxed at 20%, so you will pay £40 in tax.

You talk about "fear of what this might to do my tax code and whether I would just be giving myself a headache".

This sounds like a psychological concern rather than a financial one. From a financial perspective, you will earn £1,180 after paying tax of £40.

Yes, it is just me, but I do not see this any more of a problem than paying income tax on a monthly salary..


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

Not the case if the OP is a 40% taxpayer.

Almost the first thing I said was “if you are a basic rate tax payer”.

ll2000

I’m 40% but I assume this just affects the numbers and not the advice. Thanks!

Dazed_and_C0nfused

ll2000 said:

I’m 40% but I assume this just affects the numbers and not the advice. Thanks!

Yes, the nil savings rate band is reduced to £500.

Expotter

It'll be very straightforward as long as you keep the money in the same place and earn the same interest every year. Otherwise, as in my case, it'll probably involve a few calls to HMRC to tell them which accounts you don't have anymore and to correct the amounts involved. They assume that whatever you earned the previous year you'll keep earning in the future, so to get the right code you'll have to keep them informed. I wouldn't call it a problem, rather an unwelcome hassle. 

aroominyork

Expotter said:

It'll be very straightforward as long as you keep the money in the same place and earn the same interest every year. Otherwise, as in my case, it'll probably involve a few calls to HMRC to tell them which accounts you don't have anymore and to correct the amounts involved. They assume that whatever you earned the previous year you'll keep earning in the future, so to get the right code you'll have to keep them informed. I wouldn't call it a problem, rather an unwelcome hassle. 

But we are talking about relatively small amounts of tax, so unless the OP likes everything neatly corrected within each tax year, s/he could just go with the rolling adjustments that DandC described.