House sale proceeds, savings interest and child benefit

Larches

Hi all. We sold our house last autumn and have the proceeds in savings accounts while we look for somewhere to buy in a new area (which is proving difficult). Given that savings rates have risen recently, we could end up getting a lot of savings interest depending on how long it takes to find a new house. My wife has also recently had a salary increase (a few months back), so taken together with savings interest, this means she could exceed the threshold for the child benefit tax charge... something we'd rather avoid, especially as it means registering for self assessment (I understand CGT is not applicable as the house was our main home).

Currently the house cash is carved up between us, but we've discussed the idea of keeping most of it in my name (in several accounts to keep within the FSCS limit) seeing as I have a much lower income, and she's fine with that. From what I can gather, this would be a legitimate way of doing things... I would have preferred to confirm it with HMRC but they're a pain to get hold of. Does anyone see any issues with this, also bearing in mind that the house was owned jointly between us (not sure if that has any implications for how we have to handle the cash until we buy again)?

Presumably if (when) I exceed the personal savings allowance, HMRC would get this info directly from the banks at the end of the year and adjust my PAYE automatically, rather than me having to do self assessment (shudder) or give them some sort of notification in advance?

I realise that ideally this would be something to discuss with an IFA, but given that it's very much a temporary situation (and we have to be careful not to spend that house money!) I thought it would be worth asking on here as I'm sure there will be some well-informed folks who know the ins and outs of this stuff.

Jeremy535897

I should mention first that, where a short period is concerned, the FSCS scheme can protect sums of up to £1 million in one bank. See:
https://www.fscs.org.uk/making-a-claim/claims-process/temporary-high-balances/

The HICBC begins to bite if either of a married couple has "adjusted net income" of £50,100, and this figure includes interest taxed at 0% because of the personal savings allowance (£1,000 for basic rate taxpayers and £500 for higher rate taxpayers).

There are no tax implications of moving money between spouses living together, using sole or joint accounts, except that the ownership of the account determines who pays any tax on the interest, or whose adjusted net income includes it. It is a sensible strategy to consider the allocation of capital, and therefore interest, between married/civil partners to avoid higher rate tax and/or HICBC.

This link explains what to do regarding savings interest and reporting it to HMRC. You must complete a self assessment tax return if your interest exceeds £10,000 in a tax year. See:
https://www.gov.uk/apply-tax-free-interest-on-savings

You cannot rely on the banks correctly informing HMRC of the interest you earn, though, where it is £10,000 or less, so keep an eye on any coding adjustment.

Dazed_and_C0nfused

Doubt it would be of any interest to an IFA.

Unless you wanted to invest the house proceeds rather than have them in savings.

You may find your wife is already needs to complete a tax return.  Have you checked what her adjusted net income will be for the current tax year.

You can't retrospectively change who gets interest, just move funds so future interest is paid to you.

Larches

That's really helpful, thanks both. I forgot to say that we do have some private pension contributions to factor in, so that may help a little... we do need to work out the adjusted net income figures as suggested.

I hadn't spotted the point about self assessment for interest over £10k so that's useful to know, although given that any such income will be split across two tax years and we hope to have bought a house by the summer, we might be OK anyway.

Dazed_and_C0nfused

Any liability to HICBC makes Self Assessment mandatory irrespective of the amounts of any particular income.

Dazed_and_C0nfused

Any liability to HICBC makes Self Assessment mandatory irrespective of the amounts of any particular income.