£1000 interest limit before tax

haye

When you exceed the £1000 interest limit before being taxed, do you need to tell HMRC how much you've gone over by or do they figure it out themselves?

Dazed_and_C0nfused

haye said:

When you exceed the £1000 interest limit before being taxed, do you need to tell HMRC how much you've gone over by or do they figure it out themselves?

Unless you have to file a Self Assessment or the interest is £10,000 or more then no, you don't need to do anything.

Lots of people can't even use the £1,000 savings nil rate band (aka Personal Savings Allowance) and HMRC will factor in the Personal Allowance and any available savings starter rate band before the savings nil rate band is used.

tiger135

so how do they take the interest from you?

Dazed_and_C0nfused

tiger135 said:

so how do they take the interest from you?

Any tax you is paid either by a reduced tax code, so more tax each payday, or by making a lump sum payment, usually by 31 January after the end of the tax year.

wiseonesomeofthetime

Dazed_and_C0nfused said:

tiger135 said:

so how do they take the interest from you?

Any tax you is paid either by a reduced tax code, so more tax each payday, or by making a lump sum payment, usually by 31 January after the end of the tax year.

I have never been given the option to make a lump sum payment, only for HMRC to muck about with my tax code so that my income is reduced during the next tax year.

But then, I don't self-assess 🤷‍♂️

RG2015

haye said:

When you exceed the £1000 interest limit before being taxed, do you need to tell HMRC how much you've gone over by or do they figure it out themselves?

The banks and building societies inform HMRC of all interest that has been paid to you during the tax year.

This should be completed by September, so about 6 months after the end of the tax year (5 April).
If any of this is taxable, HMRC will usually adjust your tax code for the following year.

Hence tax due on interest paid in the year ended 5 April 2023 will likely be paid during the tax year commencing 6 April 2024.

Dazed_and_C0nfused

wiseonesomeofthetime said:

Dazed_and_C0nfused said:

tiger135 said:

so how do they take the interest from you?

Any tax you is paid either by a reduced tax code, so more tax each payday, or by making a lump sum payment, usually by 31 January after the end of the tax year.

I have never been given the option to make a lump sum payment, only for HMRC to muck about with my tax code so that my income is reduced during the next tax year.

But then, I don't self-assess 🤷‍♂️

You can always make a lump sum payment if you wish and your tax code would be adjusted to reflect it.  For example say you owe £500 for 2022-23 and HMRC plan on collecting it via a reduced tax code for 2024-25.

You would have the option to make a payment via your Personal Tax Account so if you paid £300 only the remaining £200 would be included in your code.  Or pay all £500 and nothing would need to be included in your tax code as far as tax owed from 2022-23 is concerned.

The 31 January date normally applies to those who have been sent a Simple Assessment calculation.  That's where HMRC wouldn't adjusted the tax code so it has to be paid direct.

tiger135

so once im over 1000 interest, effectively my interest rate drops 20% 

Dazed_and_C0nfused

tiger135 said:

so once im over 1000 interest, effectively my interest rate drops 20% 

Assuming you don't have any spare Personal Allowance and no savings starter rate band then yes it likely will do.

Which is where a cash ISA that's more than 80% of the non ISA account rate is worth considering.

r6mile

Perhaps a relatively uncommon situation, but savings interest - even when taxed at 0% - increases your “Adjusted Net Income”. Which has implications for High Income Child Benefit Charge if earning between 50k and 60k. In my situation (3 kids), if I earn £100 in interest (even untaxed) I have to pay back £30 in child benefit.

I think it’s similar with people in the 100-125k bracket where personal allowance gets withdrawn.

Hence why I would only look at ISAs really.

Dazed_and_C0nfused

r6mile said:

Perhaps a relatively uncommon situation, but savings interest - even when taxed at 0% - increases your “Adjusted Net Income”. Which has implications for High Income Child Benefit Charge if earning between 50k and 60k. In my situation (3 kids), if I earn £100 in interest (even untaxed) I have to pay back £30 in child benefit.

I think it’s similar with people in the 100-125k bracket where personal allowance gets withdrawn.

Hence why I would only look at ISAs really.

With the HICBC limits remaining the same for over 10 years now I suspect it's becoming much more common.