Chip 3% bonus and savings interest tax

meltedlemondrop

So, I need a place where I can grow my money without it adding to my limit for savings interest tax. How does the HMRC treat the bonus on a chip account? Does it treat it like interest, or does it treat it like income? Either way what I want to avoid is my tax code being changed - if I need to be taxed at source for the bonus so be it. 

Dazed_and_C0nfused

It appears to be interest in any normal sense but they prefer to call it a bonus 🙄

https://intercom.help/get-chip/en/articles/6697878-bonus-explained

Band7

Interest is taxable income

The CHIP bonus will be treated like interest, too. You won't get taxed at source. Cumbersome info from the CHIP help: 

Remember also that the bonus is not FSCS protected, and you can only withdraw it once you have withdrawn your entire balance.

If you want to avoid tax on savings, look at an ISA. The Virgin Exclusive 3% ISA is still available. All you need for it is a Virgin M Plus current account but you don't have to use that one if you don't want to. Other ISAs are available.

meltedlemondrop

Actually I already have a fixed rate ISA at 3.7 and have put the max 20k into it already this year. Unfortunately due to recently becoming a higher rate tax payer my personal savings allowance halved overnight at the same time interest rates on all my accounts doubled or tripled! Even with putting 20k into the Isa I’m still gonna pay interest! Next year I’ll transfer that ISA and add to it which will solve the problem but I have a quandary this year as I’ve already earned 300-400 interest and due to earn 2-300 more. I went and stuck 14k onto premium bonds while I thought about this, as an emergency measure but I have won no prizes so far and seriously thinking would it have been better to try to earn some interest and take the hit on the tax?!

meltedlemondrop

It goes against everything I’ve always stood for to not go for the highest interest accounts. I wouldn’t mind if it was taxed at source but I do not want my tax code for my actual salary to change the following year which is effectively what they’ll do. Only other way is to reduce my income beneath the higher rate! Do you know if gift aid donations do this? Or would I have to do salary sacrifice for a company car or something?

gt94sss2

If you fill in a self assessment tax return, there is an option to not change the tax code for any underpaid tax.

macy08

meltedlemondrop said:

It goes against everything I’ve always stood for to not go for the highest interest accounts. I wouldn’t mind if it was taxed at source but I do not want my tax code for my actual salary to change the following year which is effectively what they’ll do. Only other way is to reduce my income beneath the higher rate! Do you know if gift aid donations do this? Or would I have to do salary sacrifice for a company car or something?

Do you do self assessment? I think when filling out a self assessment you have a choice of PAYE coding change or paying upfront

Band7

The other option to avoid tax on savings interest is to add to your pension. Whether this is a realistic option for you depends on your plans for your money.

There's also Premium Bonds if you don't have them already and fancy a bit of an ultra-low-risk gamble.

happybagger

Just spotted while browsing, for anyone who has "topcashback" account and is considering a chip account, they have a £20 cashback offer atm. T&Cs apply obviously, requires £5k deposit and I can't see how long it needs to be held there. But may be of interest.