Personnel savings tax question 14 December 2022 at 10:18PM in Savings & investments 11 replies 523 views

eric4395

 My wife and i have recently retired and my only income is my gov pension now approx £11,000 a year
My wifes income is goverment pension and a small works pension equalling about the same amount £11,000. My  2 works pensions  are  lying in drawdown untouched at the moment while i make up my mind what my  best options are. We both  have fixed savings accounts and also isas in savings but how do you work out how much to leave in a fixed rate savings account which i know is up to £1000 tax free  before you are  then taxed and then any extra you have you can or  should use in an isa.  Can someone advise taking the best fixed interest rate available at the moment and what our income is how much we can put in this. Also is it as simple as this if the fixed rate is particularly high and the best isa rate is obviously below this are you better taking the hit on breaking the £1000 tax allowance as it would still work out better. Is there some kind of ready reckoner how to work this out.  Sorry Hope this makes sense.

ColdIron

This is probably worth a read regarding savings tax

https://www.moneysavingexpert.com/savings/tax-free-savings/

Dazed_and_C0nfused

eric4395 said:

 My wife and i have recently retired and my only income is my gov pension now approx £11,000 a year
My wifes income is goverment pension and a small works pension equalling about the same amount £11,000. My  2 works pensions  are  lying in drawdown untouched at the moment while i make up my mind what my  best options are. We both  have fixed savings accounts and also isas in savings but how do you work out how much to leave in a fixed rate savings account which i know is up to £1000 tax free  before you are  then taxed and then any extra you have you can or  should use in an isa.  Can someone advise taking the best fixed interest rate available at the moment and what our income is how much we can put in this. Also is it as simple as this if the fixed rate is particularly high and the best isa rate is obviously below this are you better taking the hit on breaking the £1000 tax allowance as it would still work out better. Is there some kind of ready reckoner how to work this out.  Sorry Hope this makes sense.

ISA's are tax free/exempt, non ISA savings accounts generate taxable interest.

And unless you have a large amount of savings you are unlikely to be able to benefit from the savings nil rate band (aka Personal Savings Allowance).

That's because you have to use your Personal Allowance and, when available, the savings starter rate band of up to £5,000 interest taxed at 0% before you can use the savings nil rate band.

So with non savings non dividend income of £11,000 you need to have taxable interest of at least £6,570 before the savings nil rate band comes into play

£1,570 - unused Personal Allowance
£5,000 - savings starter rate band (0% tax rate).

eric4395

Many thanks for both replies but hypothetically if I have £100,000 in savings how much should I  roughly put in a fixed rate account and then the rest in ISAs  for best result tax reasons.Bearing in mind I have fixed rate savings and ISAs at the moment but not sure they are set up properly and that I wouldn't be liable to pay tax on my fixed rate ones. I honestly find these figures and meant to be easy to follow guidelines not very easy to follow  at all.

eskbanker

eric4395 said:

Many thanks for both replies but hypothetically if I have £100,000 in savings how much should I  roughly put in a fixed rate account and then the rest in ISAs  for best result tax reasons.Bearing in mind I have fixed rate savings and ISAs at the moment but not sure they are set up properly and that I wouldn't be liable to pay tax on my fixed rate ones. I honestly find these figures and meant to be easy to follow guidelines not very easy to follow  at all.

You can each put up to £20K per tax year into ISAs but anything else is taxable, albeit some (maybe even all) will be taxed at 0%, depending on how much interest you earn.

eric4395

Sorry I apologise I'm still struggling with the answers,. My works  pensions  at this moment I won't be touching as I don't need to.  I can live off my savings for the time being. I also have money in  an easy access account to see me by for next year. If for example you had an income of approx £11,000 and savings of up to say  £100,000  how much would you personally put into a fixed rate account for a year let's say at 4% and make sure the rest is in ISA s . Think I'm looking for approx figures than a general reply which to me is still not clear although I admit it is to others  

Albermarle

£100K at 4% = £4Kpa
You can earn about £7500 in interest per tax year without paying tax , so no need to have any cash isa's.

Caveat is that depends  in future that

1)You never earning more than £11K.
2) You not having savings much greater than £100K
3) If savings interest rates continue to rise significantly 

Audaxer

eric4395 said:

Sorry I apologise I'm still struggling with the answers,. My works  pensions  at this moment I won't be touching as I don't need to.  I can live off my savings for the time being. I also have money in  an easy access account to see me by for next year. If for example you had an income of approx £11,000 and savings of up to say  £100,000  how much would you personally put into a fixed rate account for a year let's say at 4% and make sure the rest is in ISA s . Think I'm looking for approx figures than a general reply which to me is still not clear although I admit it is to others  

It depends on the rates of both products. You can put just enough into fixed rate savings to ensure you do not pay any tax, but if the rates on the Cash ISA are less you could still be better off with more in the fixed rate savings account(s) even although you will be liable for tax on some of that interest.

eric4395

Albermarle said:

£100K at 4% = £4Kpa
You can earn about £7500 in interest per tax year without paying tax , so no need to have any cash isa's.

Caveat is that depends  in future that

1)You never earning more than £11K.
2) You not having savings much greater than £100K
3) If savings interest rates continue to rise significantly 

I didn't realise you could have as much in a fixed rate savings account before you would be hit with personel savings tax. I prob have more in ISAs than my fixed rate accounts, so next time an ISA has matured and I don't need it straight away  then is it  better  I should put it in a fixed rate savings account then as long as it's not much over £100,000 is that correct?

Eco_Miser

eric4395 said:

Sorry I apologise I'm still struggling with the answers,. My works  pensions  at this moment I won't be touching as I don't need to.  I can live off my savings for the time being. I also have money in  an easy access account to see me by for next year. If for example you had an income of approx £11,000 and savings of up to say  £100,000  how much would you personally put into a fixed rate account for a year let's say at 4% and make sure the rest is in ISA s . Think I'm looking for approx figures than a general reply which to me is still not clear although I admit it is to others  

Don't forget your easy access account is also earning interest (at about 2.5%) which is also taxable but set off against both your surplus Personal Allowance and both the nil rate bands as well as the fixed rate account(s).

So you can have a total income up to £18570 before paying tax (in your reported circumstances).
Take off your pensions income, leaving about £7570 for interest.
Take off expected interest from your easy access account.

The rest is what you could get tax-free from the fixed rate account. Multiply it by 100 and divide by the fixed rate to get the amount to put in the account (round down to a suitably round number).

As Albermarle pointed out the full £100,000 won't put you over your allowances at 4%, I hope the above will help you work out what you need if the rates improve noticeably or the amount available changes.

Dazed_and_C0nfused

eric4395 said:

Sorry I apologise I'm still struggling with the answers,. My works  pensions  at this moment I won't be touching as I don't need to.  I can live off my savings for the time being. I also have money in  an easy access account to see me by for next year. If for example you had an income of approx £11,000 and savings of up to say  £100,000  how much would you personally put into a fixed rate account for a year let's say at 4% and make sure the rest is in ISA s . Think I'm looking for approx figures than a general reply which to me is still not clear although I admit it is to others  

You originally said  you had pension income of £11,000.

You will never ever get the correct answer unless you provide clear unambiguous information.