Starting rate for savings. How does it work.

Dazed_and_C0nfused

magicman2204 said:

xylophone said:

Do you mean that the £270,000 is in an account in your wife's name only or is it in a joint account?

 If in your wife's sole  name, in a full  tax year at 6%, interest would be £16,200.

She would have non savings income of £4000.

This would be covered by her Personal Allowance.

£8,570 of the interest would be covered by the PA.

Of the remaining £7,630, £5,000 would be covered by the Starter Rate for savings and £1000 by the Personal Savings Allowance.

The remaining £1,630 would be taxable at 20%.

She would need to advise HMRC of her situation as the interest she receives is over £10,000 per annum.

Thank you for that useful info. The accounts will all be in her name as she only gets £4000 per year in carers allowance. So we need to let HMRC know as we'll get more than £10k interest each year, but as long as the total amount falls within the £12.570, £5k starters savings, and the £1k PSA then we'll pay no tax or just a small amount of it's over that?

But she doesn't get a Personal Allowance of £12,570, hers is only £11,310.

We already have the marriage allowance sorted out so my tax code has that taken into account already

If her Carers Allowance is exactly £4,000 she has £7,310 spare Personal Allowance to use first.

Once that has been used the next £5,000 of interest will be taxed at 0% (savings starter rate band).

And only once that has been used can she utilise the savings nil rate allowing a further £1,000 to be taxed at 0%.

So £13,310 of interest before any tax is actually payable on it.

Also it's not a case of simply letting HMRC know, they already get the interest details direct from banks and building societies.

If her interest reaches £10,000 in any tax year then she will need to register for Self Assessment and complete a tax return.  Even if no tax is payable.

xylophone

We already have the marriage allowance sorted out so my tax code has that taken into account already. 

If your wife has applied for marriage allowance then her Personal Allowance is reduced - see

https://www.gov.uk/marriage-allowance

so that the calculation in my previous would need adjustment.

https://www.gov.uk/apply-tax-free-interest-on-savings

magicman2204

Dazed_and_C0nfused said:

magicman2204 said:

xylophone said:

Do you mean that the £270,000 is in an account in your wife's name only or is it in a joint account?

 If in your wife's sole  name, in a full  tax year at 6%, interest would be £16,200.

She would have non savings income of £4000.

This would be covered by her Personal Allowance.

£8,570 of the interest would be covered by the PA.

Of the remaining £7,630, £5,000 would be covered by the Starter Rate for savings and £1000 by the Personal Savings Allowance.

The remaining £1,630 would be taxable at 20%.

She would need to advise HMRC of her situation as the interest she receives is over £10,000 per annum.

Thank you for that useful info. The accounts will all be in her name as she only gets £4000 per year in carers allowance. So we need to let HMRC know as we'll get more than £10k interest each year, but as long as the total amount falls within the £12.570, £5k starters savings, and the £1k PSA then we'll pay no tax or just a small amount of it's over that?

But she doesn't get a Personal Allowance of £12,570, hers is only £11,310.

We already have the marriage allowance sorted out so my tax code has that taken into account already

If her Carers Allowance is exactly £4,000 she has £7,310 spare Personal Allowance to use first.

Once that has been used the next £5,000 of interest will be taxed at 0% (savings starter rate band).

And only once that has been used can she utilise the savings nil rate allowing a further £1,000 to be taxed at 0%.

So £13,310 of interest before any tax is actually payable on it.

Also it's not a case of simply letting HMRC know, they already get the interest details direct from banks and building societies.

If her interest reaches £10,000 in any tax year then she will need to register for Self Assessment and complete a tax return.  Even if no tax is payable.

Ok that makes sense, hadn't taken the marriage allowance into account there. Really appreciate the clarity of the explanation. 👍