Tax on savings

Rudyson

Rudyson said:

Dazed_and_C0nfused said:

The £1,000 isn't something low earners can usually make any use of.

But you may be able to with that level of savings.

Any taxable earnings or pension which uses up your basic rate band also uses some of the savings starter rate (upto £5,000 taxed at 0%).  So on £13,000 you will pay basic rate tax on £430 meaning your savings starter rate band is reduced from £5,000 to £4,570.

So let's say you get £6,000 in interest it would be taxed like this,

£4,570 x 0% (savings starter rate) = £0
£1,000 x 0% (savings nil rate) = £0
£430 x 20% (savings basic rate) = £86

Total tax due on savings interest = £86 

All the above assumes you haven't applied for Marriage Allowance.  If you have it will reduce the savings starter rate band available to you.

Very interesting as this will apply to me as well. I'm on a state pension and draw down from a private pension pot an amount that keeps me under the £12,570 tax threshold. Next year, I'll be getting over £1000 in interest, so I assumed I'd have to pay tax or reduce the drawdown: are you saying I have an extra £5k leeway in interest before I pay anything?

Thanks @Malthusian and @where_are_we for your replies

Silverbird65

Neither are the HMRC I spoke to one person who had not heard of it. No hope for mere mortals then😁

Black_Cat2

Glad this has been asked.  I will be earning £10,000 this tax year so won't pay tax on my earnings and will be receiving an inheritance which will mean I will receive over £1000 in interest pa. 

Am I right in thinking I don't need to pay tax on the interest if it is below the £6000 mentioned above? 🤔

eskbanker

Black_Cat2 said:

Glad this has been asked.  I will be earning £10,000 this tax year so won't pay tax on my earnings and will be receiving an inheritance which will mean I will receive over £1000 in interest pa. 

Am I right in thinking I don't need to pay tax on the interest if it is below the £6000 mentioned above? 🤔

If your total earnings are below your personal tax allowance of £12,570 then neither of the savings allowances come into play anyway, so it's a moot point....

where_are_we

Black_Cat2 said:

Glad this has been asked.  I will be earning £10,000 this tax year so won't pay tax on my earnings and will be receiving an inheritance which will mean I will receive over £1000 in interest pa. 

Am I right in thinking I don't need to pay tax on the interest if it is below the £6000 mentioned above? 🤔

Even better - as well as the £6000 (£5000 + £1000) already mentioned you will have £12570 minus £10000 = £2570 unused personal tax allowance. No tax to pay on interest on anything below £8570.

Black_Cat2

Apologies esk (and ty for your response) but in my case is there a maximum amount of interest I can receive before declaring it to Hmrc? 

where_are_we

eskbanker said:

where_are_we said:

I was amazed that he had never heard of the starter savings rate

Doesn't seem surprising to me that a call centre employee engaged to deal with current account issues won't be an expert on the ins and outs of taxation (which form no part of his remit and responsibility)!

Perhaps, but I had gone through 2 different employees before this one who was a security expert. I was "interrogated" about the reasons for the transfer so you would think he should know about large movements of money between spouses for reducing tax.

eskbanker

Black_Cat2 said:

Apologies esk (and ty for your response) but in my case is there a maximum amount of interest I can receive before declaring it to Hmrc? 

Answered in the post before that one, by @where_are_we, but unless you self-assess anyway, you don't need to declare interest to HMRC as such (edit: unless exceeding £10K, as pointed out in subsequent post below), they'll be informed of it by the institutions concerned and take account of that when determining if you have any tax liability.

eskbanker

where_are_we said:

eskbanker said:

where_are_we said:

I was amazed that he had never heard of the starter savings rate

Doesn't seem surprising to me that a call centre employee engaged to deal with current account issues won't be an expert on the ins and outs of taxation (which form no part of his remit and responsibility)!

Perhaps, but I had gone through 2 different employees before this one who was a security expert. I was "interrogated" about the reasons for the transfer so you would think he should know about large movements of money between spouses for reducing tax.

I suspect that movements for that specific purpose will be less commonplace than you imagine!

Dazed_and_C0nfused

Black_Cat2 said:

Apologies esk (and ty for your response) but in my case is there a maximum amount of interest I can receive before declaring it to Hmrc? 

If you receive £10,000 or more you need to complete a Self Assesment return.  And that's irrespective of whether any tax is due or not.