query on tax and savings interest

gerdo

Hello all, can someone please confirm if my calculations here are correct. We have sold our house and will have the money in the bank for possibly a year before buying somewhere else. So want to earn as much of that interest tax free as possible, without locking the money away for any length of time.

My wife has a DB pension worth 6k per year and she earns 4k per year savings interest (1k of that is tax free)

so that leaves £3570 of her personal tax allowance

I believe she then qualifies for the 5K starter rate on interest

Therefore I work out that she can earn £8570 before she has to pay tax on the house savings, is that correct?

Doctor_Who

gerdo said:

Hello all, can someone please confirm if my calculations here are correct. We have sold our house and will have the money in the bank for possibly a year before buying somewhere else. So want to earn as much of that interest tax free as possible, without locking the money away for any length of time.

My wife has a DB pension worth 6k per year and she earns 4k per year savings interest (1k of that is tax free)

so that leaves £3570 of her personal tax allowance

I believe she then qualifies for the 5K starter rate on interest

Therefore I work out that she can earn £8570 before she has to pay tax on the house savings, is that correct?

Do you mean that £1K of savings interest is from an ISA or are you using the £1K PSA?

Dazed_and_C0nfused

My wife has a DB pension worth 6k per year and she earns 4k per year savings interest (1k of that is tax free)

You don't need to include ISA interest when looking at tax liabilities.

Doctor_Who

Dazed_and_C0nfused said:

My wife has a DB pension worth 6k per year and she earns 4k per year savings interest (1k of that is tax free)

You don't need to include ISA interest when looking at tax liabilities.

It's not clear (to me) whether the £1k refers to ISA income, in which case it can be ignored OR the £1K PSA. It may be the latter since the OP doesn't mention the PSA further down.

gerdo

The 4k interest is just from a fixed term savings account so I have already subtracted the 1K from that,  to make her total earnings £9570.

Bigwheels1111

As long as earning and pension do not go over £12,570 She would get another £6,000 left for interest.

A total of £18,570 tax free.

In this case 6k pension leaves £12,570 for tax free interest.

After 10K in interest you would need to fill out a tax return.

Doctor_Who

In which case I think it should be:

£6K pension + £4K savings = £10K income

Leaving £2570 of the personal allowance to use

Plus £5K starter savings rate taxed @ 0%

Plus £1K PSA taxed @ 0% (this can only be used after the personal allowance and starter rate)

Which gives £8570 left for the 'house' interest.

Dazed_and_C0nfused

gerdo said:

The 4k interest is just from a fixed term savings account so I have already subtracted the 1K from that,  to make her total earnings £9570.

On that level of income she isn't going to able to make use of the savings nil rate band (aka Personal Savings Allowance) so it isn't a factor you need to consider.

She can only make use of that once she has used her Personal Allowance (reduced to £11,310 if she has applied for Marriage Allowance) and savings starter rate band (upto £5,000 interest taxed at 0%).