Tax on Savings

mighty2022

Hi,

I understand there is a £500 tax free interest allowance for those in the 40% tax bracket.

My wife has a 1 year fixed saving account that is due to pay annual interest on maturity in May 2024.

How does this work in terms of tax free interest allowance? Does the interest paid out in May 24 count towards her £500 allowance in tax year 23-24 or 24-25?

Thanks,

Dazed_and_C0nfused

mighty2022 said:

Hi,

I understand there is a £500 tax free interest allowance for those in the 40% tax bracket.

My wife has a 1 year fixed saving account that is due to pay annual interest on maturity in May 2024.

How does this work in terms of tax free interest allowance? Does the interest paid out in May 24 count towards her £500 allowance in tax year 23-24 or 24-25?

Thanks,

Interest from Cash ISA's is "tax free", non ISA interest is taxable in full.

For a higher rate payer (calculated inclusive of the interest) the first £500 is taxed at a 0% rate.

If interest is paid in May 2024 then it will be taxable in the 2024-25 tax year.

mighty2022

Dazed_and_C0nfused said:

mighty2022 said:

Hi,

I understand there is a £500 tax free interest allowance for those in the 40% tax bracket.

My wife has a 1 year fixed saving account that is due to pay annual interest on maturity in May 2024.

How does this work in terms of tax free interest allowance? Does the interest paid out in May 24 count towards her £500 allowance in tax year 23-24 or 24-25?

Thanks,

Interest from Cash ISA's is "tax free", non ISA interest is taxable in full.

For a higher rate payer (calculated inclusive of the interest) the first £500 is taxed at a 0% rate.

If interest is paid in May 2024 then it will be taxable in the 2024-25 tax year.

Thanks for the response. I am aware Cash ISAs are tax free and we have fully maxed out our limit for 23-24.

The reason I asked my original question was because my wife, all goes well, will be on mat leave for most of 24-25 and so will fall under the 20% bracket for that year.

Is there a way to make good use of 2023-24 £500 limit from this particular 1 yr fixed, leaving a full £1000 for tax year 24-25? 

Will leaving the 1 yr fixed in March work? I'm just not sure if the interest accured by March are paid out and if there are any charges?

eskbanker

mighty2022 said:
Is there a way to make good use of 2023-24 £500 limit from this particular 1 yr fixed, leaving a full £1000 for tax year 24-25? 

Will leaving the 1 yr fixed in March work? I'm just not sure if the interest accured by March are paid out and if there are any charges?

Most non-ISA fixed accounts can't be closed or accessed early, what are the terms of this one?

mighty2022

eskbanker said:

mighty2022 said:
Is there a way to make good use of 2023-24 £500 limit from this particular 1 yr fixed, leaving a full £1000 for tax year 24-25? 

Will leaving the 1 yr fixed in March work? I'm just not sure if the interest accured by March are paid out and if there are any charges?

Most non-ISA fixed accounts can't be closed or accessed early, what are the terms of this one?

Sorry I should have said its a easy access saving account from YBS: Internet Saver Plus Issue 13

mighty2022

Folks, think I've got this horribly wrong! 

I've re-read the terms and it states that interest is paid annually on 31st March so it will fall under 23-24 tax year:

"Annual interest is paid on 31 March. It can be paid into the Internet Saver Plus Issue 13 account, another Yorkshire Building Society account or another building society or bank account."

Thanks to all that replied

Dazed_and_C0nfused

mighty2022 said:

Dazed_and_C0nfused said:

mighty2022 said:

Hi,

I understand there is a £500 tax free interest allowance for those in the 40% tax bracket.

My wife has a 1 year fixed saving account that is due to pay annual interest on maturity in May 2024.

How does this work in terms of tax free interest allowance? Does the interest paid out in May 24 count towards her £500 allowance in tax year 23-24 or 24-25?

Thanks,

Interest from Cash ISA's is "tax free", non ISA interest is taxable in full.

For a higher rate payer (calculated inclusive of the interest) the first £500 is taxed at a 0% rate.

If interest is paid in May 2024 then it will be taxable in the 2024-25 tax year.

Thanks for the response. I am aware Cash ISAs are tax free and we have fully maxed out our limit for 23-24.

The reason I asked my original question was because my wife, all goes well, will be on mat leave for most of 24-25 and so will fall under the 20% bracket for that year.

Is there a way to make good use of 2023-24 £500 limit from this particular 1 yr fixed, leaving a full £1000 for tax year 24-25? 

Will leaving the 1 yr fixed in March work? I'm just not sure if the interest accured by March are paid out and if there are any charges?

That would depend on the terms of the account.

If it was closed in the current tax year then the accrued interest should be credited in this year and reported to HMRC as such (by the bank).

But there may be a penalty for early closure which makes it a bad idea financially.

Shedman

mighty2022 said:

Folks, think I've got this horribly wrong! 

I've re-read the terms and it states that interest is paid annually on 31st March so it will fall under 23-24 tax year:

"Annual interest is paid on 31 March. It can be paid into the Internet Saver Plus Issue 13 account, another Yorkshire Building Society account or another building society or bank account."

Thanks to all that replied

She could close the Internet Saver Plus early (once you've calculated roughly when £500 interest has been earned) as the interest will be credited at closure so will fall in this tax year. Then she could open an EA account at say Cynergy Bank (currently 4,3% so actually better than Issue 13) as they credit the interest after a year so would fall into 24-25 tax year 

mighty2022

Shedman said:

mighty2022 said:

Folks, think I've got this horribly wrong! 

I've re-read the terms and it states that interest is paid annually on 31st March so it will fall under 23-24 tax year:

"Annual interest is paid on 31 March. It can be paid into the Internet Saver Plus Issue 13 account, another Yorkshire Building Society account or another building society or bank account."

Thanks to all that replied

She could close the Internet Saver Plus early (once you've calculated roughly when £500 interest has been earned) as the interest will be credited at closure so will fall in this tax year. Then she could open an EA account at say Cynergy Bank (currently 4,3% so actually better than Issue 13) as they credit the interest after a year so would fall into 24-25 tax year 

Thats actually a good idea - I will take a look at that. Just need to figure out when £500 interest has been accured.

In terms of closing an EA account without accuring any further interest, is it just the case of transferring all of the saving out? That might be a option rather than complete closure as that may incur some charges (i've not checked if it does yet)

Notepad_Phil

mighty2022 said:

Shedman said:

mighty2022 said:

Folks, think I've got this horribly wrong! 

I've re-read the terms and it states that interest is paid annually on 31st March so it will fall under 23-24 tax year:

"Annual interest is paid on 31 March. It can be paid into the Internet Saver Plus Issue 13 account, another Yorkshire Building Society account or another building society or bank account."

Thanks to all that replied

She could close the Internet Saver Plus early (once you've calculated roughly when £500 interest has been earned) as the interest will be credited at closure so will fall in this tax year. Then she could open an EA account at say Cynergy Bank (currently 4,3% so actually better than Issue 13) as they credit the interest after a year so would fall into 24-25 tax year 

Thats actually a good idea - I will take a look at that. Just need to figure out when £500 interest has been accured.

In terms of closing an EA account without accuring any further interest, is it just the case of transferring all of the saving out? That might be a option rather than complete closure as that may incur some charges (i've not checked if it does yet)

No, you would need to close the account to get the interest paid out at the time of closure.

If you just move the money out then the interest accrued will remain in the account until the next date when interest is normally paid out.