Savings interest tax

Krakkkers

If i put £170k in a 5 year fixed savings account at 3.61% it will make £32981 interest in those 5 years but how is that taxed?
is it better to have it paid monthly, yearly or on maturity for tax purposes?
Lets assume i take income from a SIPP at the tax threshold (£12560).

csgohan4

you usually get a statement every year of interest earned which you can put on your tax return assuming over the below thresholds at this amount

if you are higher rate only £500 is tax free and £1000 if basic rate tax free. 

Bigwheels1111

Get 3.75% here.

https://www.blme.com/products-and-services/savings/premier-deposit-account/?profitRateId=78e3eb88-882f-ed11-943a-005056011659

170k is that a joint account.

As only 85k get FSCS protection for a single account.

Dazed_and_C0nfused

csgohan4 said:

you usually get a statement every year of interest earned which you can put on your tax return assuming over the below thresholds at this amount

if you are higher rate only £500 is tax free and £1000 if basic rate tax free. 

You can only use the £1,000 savings nil rate (aka Personal Savings Allowance) if you have used both your Personal Allowance and savings starter rate band.

And from what the op says they seem to have a little Personal Allowance and all the savings starter rate band available.  Assuming they haven't applied for Marriage Allowance.

Lets assume i take income from a SIPP at the tax threshold (£12560).

Daliah

Your provider will pay the interest without tax deduction, and is likely (you have to confirm with them) to report the interest paid on a financial year basis to HMRC. Whether the interest gets paid monthly or annually makes little difference, except perhaps in the first and the last year. I don't think there are any 5-year accounts which only pay interest on maturity.

Depending on your total annual income, you will have to pay 20%, 40%, 45% or no tax at all on either some or all of the interest you received in any given tax year. If your entire annual income is £12560 plus the interest from your £170k (at least £6,137 p.a.), you can receive £1,000 interest per annum tax free and the rest of the interest is taxed at 20%

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


NB. Your FSCS protection is max £85k per person per financial institution

Krakkkers

I thought there was another £5000 a year personal allowance?
So I could earn £6000 interest tax free?

Bigwheels1111

The way I understand it after talking to HMRC.

Im on a low income.

If I earn under £18570.00 I can use said amount of interes as tax free.

So if I earn 5K, I could get £13570.00 of interest at 0% tax.

 12570.00 personal allowance

  5000.00 starter rate

  1000.00 Personal Savings Allowance

£18570.00, after this ammount Tax is 20%

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

Krakkkers

That's what I thought so I could take £12570 from my SIPP and earn £6000 from interest and pay no tax or NI.
Still same question though, monthly  yearly or on maturity?

Bigwheels1111

Krakkkers said:

That's what I thought so I could take £12570 from my SIPP and earn £6000 from interest and pay no tax or NI.
Still same question though, monthly  yearly or on maturity?

yearly or on maturity only matters.

For more than 1 year fixed you want annually.

Say you had 80K on a 5 year fixed

Annually would be £4000

On maturity would be over 20K and lots of tax due.

20K - your 6k allowance = 14K - 2800.00 tax.

Krakkkers

Thanks, that's what I thought.
Now I just wait for 4% ?????

Bigwheels1111

Krakkkers said:

Thanks, that's what I thought.
Now I just wait for 4% ?????

3.75% Today, 4% should be here by December if not more.

Well I can hope.