How to tell if you'll need to pay tax on interest?

Eirambler

If you think you're in danger of going over, don't forget you can put up to £20k in an ISA each year and that's tax free.

So, it might be worth opening an ISA as well as a general savings account and keeping enough in the ISA to ensure that your general savings account doesn't trigger a tax payment. The ISA will likely pay a slightly lower interest rate than the general savings account, but would still be considerably better than going over the £1000 and having to pay tax at 20%.

poppystar

martyp said:

Excellent, thanks. Sorry how would the tax be taken? I want to avoid getting into trouble if I'm meant to declare it somehow as it would be across multiple savings accounts

You personally only have to declare it via self assessment if you’re earning in excess of £10k interest AIUI. Below that they will calculate and adjust code to take what you need to pay. Good idea to keep records and check it’s what you would expect though.

martyp

Thanks all, much appreciated.

Albermarle

Eirambler said:

If you think you're in danger of going over, don't forget you can put up to £20k in an ISA each year and that's tax free.

So, it might be worth opening an ISA as well as a general savings account and keeping enough in the ISA to ensure that your general savings account doesn't trigger a tax payment. The ISA will likely pay a slightly lower interest rate than the general savings account, but would still be considerably better than going over the £1000 and having to pay tax at 20%.

The lower interest rate on the ISA can mean it is sometimes better to have the higher interest rate and pay the tax.
It all depends on the relative rates which can vary at different times.
Currently the best one year fix is 5.7% and as an ISA 4.8% . In this case the ISA wins but that is not always the case.