Tax on Pensioners savings interest?

Mike2527

My mother in law (aged 76 & widowed) has a sizeable savings pot (around £250k), but no private pension. Simply put she uses her savings as a pension.  She has asked me to consider how her money could work better for her (i.e high-interest accounts etc).  I'm unsure whether she would be taxed on her savings interest - would she?  Her only income is the state pension at circa £560.00 a month. 

Thanks,

Mike

GeoffTF

Yes she will have to pay tax on any interest above the allowances:

https://www.gov.uk/apply-tax-free-interest-on-savings

YorkshireBoy

GeoffTF said:

Yes she will have to pay tax on any interest above the allowances:

https://www.gov.uk/apply-tax-free-interest-on-savings

In her situation though, with a decent amount of allowance remaining (plus the £5K and £1K allowances), she'd need to be earning an interest rate approaching 5%.

Expotter

If that's her only income, £560x12= £6720, it's unlikely she'd have to pay tax on interest.
Personal allowance £12570
Starter savings rate £5000
Personal Savings Allowance £1000
Total £18570 - £6720 = £11850

Meaning she could earn up to £11850 in interest from savings without having to pay tax. Note however, that if it's higher than £10000, she'd have to fill in a Self Assessment tax return.

jimjames

These numbers above also assume none of the money is in ISAs, if some is then it means less potential tax liability too. If that might be an issue then getting £40k into ISAs now and in April might make sense.

xylophone

Her only income is the state pension at circa £560.00 a month. 

£560 every four weeks so £140 a week? A full basic state pension is  currently £141.85 a week.

If you do mean every calendar month then the weekly pension is even lower.

Is there a reason for this?

What exactly does her statement of benefits from DWP show?

If you do mean that her only non savings income is £6720 a year (or even if it is £7280 a year), then she has scope for a fair sum in interest before being liable for tax.

She can use the balance of her Personal Allowance after deduction of pension income.

The starter rate for savings.

The Personal Savings Allowance.

https://www.gov.uk/apply-tax-free-interest-on-savings

Dazed_and_C0nfused

Remember once she gets £10,000 interest in any tax year she needs to file a Self Assessment return, even if no tax is actually payable.

Mike2527

Thanks for your useful replies.  I guessed the state pension amount as I couldn’t recall the figure.  This is her only income though.  I’ll help her take advantage of ISA benefits both this month & next.   Interest levels above £10k noted.  

Cheers. 

xylophone

 I guessed the state pension amount as I couldn’t recall the figure. 

When dealing with taxation, best not to guess - you don't want HMRC "taking a robust view of the circumstances".......