How much interest can my wife earn on savings before having to pay tax?

PhotoMan

Hi,

I wonder if anyone could clarify whether or not I have correctly understood the situation with regards to paying tax on savings interest.

My wife and I have money in building society accounts and ISAs and current bank accounts. I have a pension that puts me in the basic income tax rate bracket. My wife has a small ill health pension of £4,360.86 a year. We have no other income.

Firstly, I believe that I can earn £1,000 a year in building society interest before I have to pay tax on it?

How much building society interest can my wife earn before she has to pay income tax on it? Is it £12,750 - £4,370.86 plus £5,000 plus £1,000? Or have I got the wrong end of the stick?

We are aware that we will have to make sure we don't have more than £85k each in any single institution.

Thank you to anyone who reads this far and claifies things for me.

eskbanker

PhotoMan said:

How much building society interest can my wife earn before she has to pay income tax on it? Is it £12,750 - £4,370.86 plus £5,000 plus £1,000?

Yes, she can earn that amount across all non-ISA accounts before paying tax:

https://www.moneysavingexpert.com/savings/tax-free-savings/

Dazed_and_C0nfused

@PhotoMan

And it is in that specific order.

She has to use any spare Personal Allowance first.

Then any available starter savings rate band (the full £5,000, taxed at 0%, based on what you've posted)

And only then can she use the savings nil rate band (up to £1,000 taxed at 0%).

But as you're a basic rate payer why not see if you can persuade her to apply for Marriage Allowance.  This will reduce her Personal Allowance to £11,310 but she still has a lot of headroom before any tax would be payable on interest.

And you save up to £252 off your tax liability.

I have a pension that puts me in the basic income tax rate bracket. 

Workerbee999

Quick question on Marriage Allowance. Is it worth moving it to a higher rate tax paper? Or would it then just get taken away again through the personal allowance taper?

Jeremy535897

You cannot transfer marriage allowance to someone is a higher rate taxpayer. That starts in England at £50,270. Tapering of allowances does not happen until adjusted net income reaches £100,000.

Albermarle

My wife and I have money in building society accounts and ISAs and current bank accounts. I have a pension that puts me in the basic income tax rate bracket.
Firstly, I believe that I can earn £1,000 a year in building society interest before I have to pay tax on it?

To be 100% clear. All interest gained from any savings provider, including any interest paid on current accounts, is treated the same. Apart from any interest gained in a cash ISA of course.
How much you can earn in interest without paying tax depends on what your actual taxable income is. If it is below £17,570, you can earn more interest than £1000 tax free.