Beginner tax question on savings 3 December 2022 at 8:46AM in Cutting tax 2 replies 113 views

peteques

Hi all - can anyone help me with a possible easy question please?
I earn 30k so am a basic rate tax payer and I know this entitles me to earn upto £1000 in interest on savings tax free. I have recently moved in with my partner and sold my house for £200,000. If I put this into a 4% account, this will earn me £8000 per year. So....
1) Will the bank deduct the tax for me?
2) Will my tax code change or....
3) Will I just pay basic rate tax on income 38k (30k income plus 8k interest)?
Thank you

Dazed_and_C0nfused

peteques said:

Hi all - can anyone help me with a possible easy question please?
I earn 30k so am a basic rate tax payer and I know this entitles me to earn upto £1000 in interest on savings tax free. I have recently moved in with my partner and sold my house for £200,000. If I put this into a 4% account, this will earn me £8000 per year. So....
1) Will the bank deduct the tax for me?
2) Will my tax code change or....
3) Will I just pay basic rate tax on income 38k (30k income plus 8k interest)?
Thank you

ISA's are tax free, non ISA interest is taxable.

If you are deemed a basic rate payer (after taking into account the taxable interest) then the first £1,000 of taxable interest is taxed at 0%.

1. No, that stopped nearly 7 years ago.

2. Yes. Say the interest is taxable for 2023:24 the first change will be to your 2024:25 tax code, likely to be done late summer/autumn 2024. This will be to provisionally collect tax for 2024:25, not anything owed for 2023:24. If you don't expect to receive similar level of taxable interest in 2024:25 you can have this provisional adjustment changed to a more realistic figure.

Your 2025:26 tax code will normally be altered to collect the tax owed from 2023:24. Sometimes you will be asked to pay the tax direct to HMRC (earliest date the tax has to be paid for 2023:24 is 31 January 2025).

3. No, nowhere near that much. In round sums you will pay basic rate tax on £24,500.

£17,500 from your taxable pay

£7,000 from your interest

All the above assumes the £8k is all reported as taxable in one tax year so not a monthly paid account.

Albermarle

To digress a little. What do you intend to use the £200K for?
To get 4 % you will need to put the money in a fixed term savings account, which means it will be inaccessible for the period of the fixed term, so presumably you will not be needing the money in the short term?

Cash savings get eroded by inflation. For example at the moment with inflation at 11% and interest at 4%, your money is losing £14k pa in value/purchasing power. Hopefully next year it will erode less but it will still go down.
If you do not need all, or part of the money for some years, you should consider investing some of it, putting it into a pension even.