Tax on interest on savings

AllAboutAlice

Been a lurker for years so this is my first post. 

I’m really confused about the £1000 clear but possible £5000 exemption if your income is below £17K (give or take). Can anyone point me to a calculator for this additional part.

 I earn less than £14K gross but have a large-ish sun to invest for a few years which would tip the interest over at 2.75% non-isa 

Many thanks

Dazed_and_C0nfused

There is no "exemption".

The calculation is that you deduct any non savings and non dividend income (taxable earnings, pension, rental profits, self employment etc) above your Personal Allowance from the £5,000.  Once that figure is £5,000 or more you have lost the ability to use the savings starter rate band.

So if your non savings non dividend income is say £13,800 and you haven't applied for Marriage Allowance you will have used £1,230 of the £5,000 (£13,800 - £12,570).

If your taxable interest was £2,000 it would all be taxed at the savings starter rate of 0%.  You wouldn't be able to use the £1,000 savings nil rate (aka Personal Savings Allowance).

If your interest was £5,500 it would be taxed,

£3,770 x 0% = £0 (savings starter rate)
£1,000 x 0% = £0 (savings nil rate)
£730 x 20% = £146 (savings basic rate)

Total payable on the interest = £146

SJMALBA

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

AllAboutAlice

Dazed_and_C0nfused said:

There is no "exemption".

The calculation is that you deduct any non savings and non dividend income (taxable earnings, pension, rental profits, self employment etc) above your Personal Allowance from the £5,000.  Once that figure is £5,000 or more you have lost the ability to use the savings starter rate band.

So if your non savings non dividend income is say £13,800 and you haven't applied for Marriage Allowance you will have used £1,230 of the £5,000 (£13,800 - £12,570).

If your taxable interest was £2,000 it would all be taxed at the savings starter rate of 0%.  You wouldn't be able to use the £1,000 savings nil rate (aka Personal Savings Allowance).

If your interest was £5,500 it would be taxed,

£3,770 x 0% = £0 (savings starter rate)
£1,000 x 0% = £0 (savings nil rate)
£730 x 20% = £146 (savings basic rate)

Total payable on the interest = £146

Thank you. It won’t be anywhere close to £5K 

I’m trying to decide between ISA or just fixed rate bond. 

Bigwheels1111

AllAboutAlice said:

Dazed_and_C0nfused said:

There is no "exemption".

The calculation is that you deduct any non savings and non dividend income (taxable earnings, pension, rental profits, self employment etc) above your Personal Allowance from the £5,000.  Once that figure is £5,000 or more you have lost the ability to use the savings starter rate band.

So if your non savings non dividend income is say £13,800 and you haven't applied for Marriage Allowance you will have used £1,230 of the £5,000 (£13,800 - £12,570).

If your taxable interest was £2,000 it would all be taxed at the savings starter rate of 0%.  You wouldn't be able to use the £1,000 savings nil rate (aka Personal Savings Allowance).

If your interest was £5,500 it would be taxed,

£3,770 x 0% = £0 (savings starter rate)
£1,000 x 0% = £0 (savings nil rate)
£730 x 20% = £146 (savings basic rate)

Total payable on the interest = £146

Thank you. It won’t be anywhere close to £5K 

I’m trying to decide between ISA or just fixed rate bond. 

Even after tax, fixed rate will be better for you.

Albermarle

With interest rates rising so rapidly at the moment

They are in an upward trend but I would hesitate to say 0.25% /0.5% every few months was 'rapid' compared to some past situations. It just seems like that after a long period of static/low rates.

Daliah

Albermarle said:

With interest rates rising so rapidly at the moment

They are in an upward trend but I would hesitate to say 0.25% /0.5% every few months was 'rapid' compared to some past situations. It just seems like that after a long period of static/low rates.

Wait until Liz Truss becomes PM. Her economic adviser is said to have forecast interest rates of up to 7%. Great for people with mortgages, obviously :rolleyes