Tax on Interest from Savings
Lu2025
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My dad passed away suddenly in March and I have been trying to sort things out for my mum. She has the state government pension of £635 per month and a small private pension of £180 per month, so approximately £9780 per year.
My dad had shares so we sold them and she has approximately £80k. I opened up a Chase account for her and transferred £80k and she gets approximately £200 a month interest which is good. However, I have read that she would get £1000 in interest and then pay tax.
1) How much tax would she pay?
2) Does the bank take the tax out at the end of the year or does she have to fill in forms?
3) She also has an ISA should I put some of the money in that?
Thanks in advance
My dad had shares so we sold them and she has approximately £80k. I opened up a Chase account for her and transferred £80k and she gets approximately £200 a month interest which is good. However, I have read that she would get £1000 in interest and then pay tax.
1) How much tax would she pay?
2) Does the bank take the tax out at the end of the year or does she have to fill in forms?
3) She also has an ISA should I put some of the money in that?
Thanks in advance
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Comments

I'll let others comment further on the tax on interest, though based on how much interest she's getting and what her income is I don't think she will need to pay any tax on it. Might need to still declare it though.
Is this £80k working as hard as it should? By that I mean is your mum earning as much interest as she could? Even if investing some of the money isn't suitable it's worth looking at things like fixed term savings and monthly savers.
She could put some money in a Cash ISA. She's likely to earn more interest outside of a Cash ISA though, and not pay tax on any of the interest.1 
Lu2025 said:My dad passed away suddenly in March and I have been trying to sort things out for my mum. She has the state government pension of £635 per month and a small private pension of £180 per month, so approximately £9780 per year.
My dad had shares so we sold them and she has approximately £80k. I opened up a Chase account for her and transferred £80k and she gets approximately £200 a month interest which is good. However, I have read that she would get £1000 in interest and then pay tax.
1) How much tax would she pay?
2) Does the bank take the tax out at the end of the year or does she have to fill in forms?
3) She also has an ISA should I put some of the money in that?
Thanks in advance
The banks will inform HMRC, she doesn't need to do anything.
You probably don't need to add to the ISA since her savings interest is going to be covered by the personal allowance/starter savings rate/PSA.'Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it'  Albert Einstein.1 
Lu2025 said:My dad passed away suddenly in March and I have been trying to sort things out for my mum. She has the state government pension of £635 per month and a small private pension of £180 per month, so approximately £9780 per year.
My dad had shares so we sold them and she has approximately £80k. I opened up a Chase account for her and transferred £80k and she gets approximately £200 a month interest which is good. However, I have read that she would get £1000 in interest and then pay tax.
1) How much tax would she pay?
2) Does the bank take the tax out at the end of the year or does she have to fill in forms?
3) She also has an ISA should I put some of the money in that?
Thanks in advance
If she receives £635 each payment then that would be £8,255/year as she would get 13 payments.
Add on the private pension of £2,160* and that's £10,415 in non savings non dividend income.
The first £2,155 of interest would be covered by the unused Personal Allowance.
The next £5,000 would be taxed at 0% (savings starter rate band).
And only once that had been used could she make use of the savings nil rate band where another £1,000 is taxed at 0%.
1. Nothing unless her interest was more than £8,155.
2. Unless the interest £10,000 or more there is nothing she needs to do. The bank reports the interest to HMRC and they check if any tax is due.
3. If that would give the best post tax return then yes. But it seems unlikely to be the best thing to do if she just has £80,000 in savings.1 
Thanks both, much appreciated.0

Dazed_and_C0nfused said:Lu2025 said:My dad passed away suddenly in March and I have been trying to sort things out for my mum. She has the state government pension of £635 per month and a small private pension of £180 per month, so approximately £9780 per year.
My dad had shares so we sold them and she has approximately £80k. I opened up a Chase account for her and transferred £80k and she gets approximately £200 a month interest which is good. However, I have read that she would get £1000 in interest and then pay tax.
1) How much tax would she pay?
2) Does the bank take the tax out at the end of the year or does she have to fill in forms?
3) She also has an ISA should I put some of the money in that?
Thanks in advance
If she receives £635 each payment then that would be £8,255/year as she would get 13 payments.
Add on the private pension of £2,160* and that's £10,415 in non savings non dividend income.
The first £2,155 of interest would be covered by the unused Personal Allowance.
The next £5,000 would be taxed at 0% (savings starter rate band).
And only once that had been used could she make use of the savings nil rate band where another £1,000 is taxed at 0%.
1. Nothing unless her interest was more than £8,155.
2. Unless the interest £10,000 or more there is nothing she needs to do. The bank reports the interest to HMRC and they check if any tax is due.
3. If that would give the best post tax return then yes. But it seems unlikely to be the best thing to do if she just has £80,000 in savings.1 
Lu2025 said:Thanks both, much appreciated.
So worth a read through at some point. Also from MSE website.
Taxfree savings: check if you're eligible  Money Saving Expert
Best savings accounts: 4.25% easy access or 5.95% fixed rates (moneysavingexpert.com)
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