Taxation of interest

CaptainWales

So if i end up a higher rate payer, what rate will my interest over £500 be charged at?

Dazed_and_C0nfused

CaptainWales said:

So if i end up a higher rate payer, what rate will my interest over £500 be charged at?

40%.  Same rate applies to Scottish and Welsh residents as well.

poppystar

Dazed_and_C0nfused said:

CaptainWales said:

So if i end up a higher rate payer, what rate will my interest over £500 be charged at?

40%.  Same rate applies to Scottish and Welsh residents as well.

Won’t the 40% only apply to the part of the savings interest in excess of the start of the higher tax band not to all the interest over £500?

I’m thinking of where savings interest is say, £8000, and income say £44000 - wouldn’t the first approx £6k (to the band change and after savings allowance of £500 taken off) ) be at the basic rate and only the remainder at the higher rate? 

Dazed_and_C0nfused

poppystar said:

Dazed_and_C0nfused said:

CaptainWales said:

So if i end up a higher rate payer, what rate will my interest over £500 be charged at?

40%.  Same rate applies to Scottish and Welsh residents as well.

Won’t the 40% only apply to the part of the savings interest in excess of the start of the higher tax band not to all the interest over £500?

I’m thinking of where savings interest is say, £8000, and income say £44000 - wouldn’t the first approx £6k (to the band change and after savings allowance of £500 taken off) ) be at the basic rate and only the remainder at the higher rate? 

Sort of, it wasn't the clearest answer.

Assuming the £44,000 in your scenario is non savings non dividend income and the Personal Allowance will be allocated against it that means £6,270 of the basic rate band remains to be used.

Which leaves the £8,000 interest to be taxed like this,

£500 x 0% (savings nil rate within the basic rate band)
£5,770 x 20% (savings basic rate using the remaining balance of the basic rate band)
£1,730 x 40% (savings higher rate)

jake_jones99

In addition to what was said about premium bonds, which form what I know tend to underperform savings accounts, I recommend considering index-linked gilts. I am now looking at TREASURY 0.125% 22/03/2024 INDEX-LINKED GILT, which looks attractive given the RPI is 13.5%. And, being a gilt, you get tax-free capital gains. It takes a bit of work to understand it, but I am looking into it and seems useful.