Savings Interest Taxation

Notfarfromtheborder

With savings interest on the rise I'm hoping to be able to capitalize over the next 2 years. We recently moved house, taking out a large mortgage to break the chain and get the house we wanted. Fast forward to now, old house sold and now have a £435 000 offset mortgage fully offset. This amount is therefore available to put into a savings vehicle, our mortgage rate is 2.89% fixed for next 22 months.

I'm sure that there will be some savings products available between now and June 2024 that will beat this interest rate, however, this would be before savings tax. Is there a way to offset the interest we would pay against the interest we would receive and only pay tax on the surplus?

Due to Salary sacrifice we are both at BR so another option could be to use £1K each tax free across differing tax years?

Daliah

Any interest your money earns counts as taxable income. Depending on how much you earn, this could catapult you back into HR tax so your annual savings interest allowance might only be £500.

Whether your allowance is £500 or £1,000, I don't think there is much you can do to avoid paying tax on your interest. You could obviously look into ISAs but that would hardly make a dent in your £435k, and ISA rates aren't really of interest to BR tax payers.

If the max length you have the money for is 22 months, you really can only look at 18 month fixes, and/or notice accounts. None of their current rates come close to what you need, so I am afraid, you'll be struggling to make a profit from it. As you say, rates are likely to rise but I am not sure you'll see anything above of what you need any time soon. At BR, you'd need at least 3.62% just to break even. I don't have a crystal ball but have a feeling that this is way above what you can expect to see for the timescales you have available.

Notfarfromtheborder

Think this may become a realistic option shortly. Still got £435K that I can borrow on mortgage at 2.89% for 18 months. I'm sure there will be a 12m fix available in the next 6 months that will be profitable. I may have to salary sacrifice a bit more to remain in 20% bracket to maximize return