How much savings will I start paying tax on

NurseMoneySaver1122
NurseMoneySaver1122 Posts: 285 Forumite
Part of the Furniture 100 Posts Name Dropper
edited 1 March 2023 at 2:45PM in Savings & investments
Partners savings:
  • Savings: £20365.00 (ISA allowances will be used up, NOT including this figure!)
  • Current interest rate 3.0% (interest paid at the end of every month).
  • £2000.00 is added to it at the end of every month.
  • Basic rate tax payer earning £35,000
  • No other taxable income (unless I'm mistaken!)

I know this question depends on interest rates, but at the current savings rate of 3%, how much savings would he get to before paying tax on savings?  

If someone could share the calculation so he can apply it to changing interest rates going forward, that would be greatly appreciated!


Comments

  • JGB1955
    JGB1955 Posts: 3,792 Forumite
    Sixth Anniversary 1,000 Posts Name Dropper
    What other taxable income does he have?
    #2 Saving for Christmas 2024 - £1 a day challenge. £325 of £366
  • Partners savings:
    • Savings: £20365.00
    • Current interest rate 3.0%
    • £2000.00 is added to it at the end of every month.
    • Basic rate tax payer

    I know this question depends on interest rates, but at the current savings rate of 3%, how much savings would he get to before paying tax on savings?  

    If someone could share the calculation so he can apply it to changing interest rates going forward, that would be greatly appreciated!


    How can anyone know without any information about their other taxable income, and specifically what type of income it consists of??
  • eskbanker
    eskbanker Posts: 36,529 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    Are the savings within an ISA (yet)?
  • EthicsGradient
    EthicsGradient Posts: 1,205 Forumite
    Sixth Anniversary 1,000 Posts Photogenic Name Dropper
    If (and others' requests for more precise details are wise) his earned income is over about £18,500, so that we assume he gets no Personal Savings Allowance, and he has no other savings, then the question seems to be "how much savings can be held at x% interest rate before the £1,000 threshold is reached?"

    Over the long term, that would be 1000/(x/100) = in this case, 1000/0.03 = £33,333.33 (or just "100000/x" if you prefer). In practice, with the ongoing saving, the point you reach this will depend on whether he gets interest paid monthly or annually, and if the latter, what point in the tax year it's paid.
  • Apologies for my lack of important info! I have edited my post to include more information (all edits are in italic)
  • Choirgrl
    Choirgrl Posts: 162 Forumite
    100 Posts First Anniversary Name Dropper
    To add to @EthicsGradient’s response, with a 3% interest rate and the pattern you describe he wouldn’t reach the £1000 threshold in the first twelve months. If the interest rises then he might tip into paying tax at some point during that 12 months, but when would depend on the new rate and the point in the year when the increase takes place. 
  • Albermarle
    Albermarle Posts: 26,972 Forumite
    10,000 Posts Sixth Anniversary Name Dropper
    Maybe the £20K ( or part of it )could go into a cash ISA once the new tax year starts?
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