Tax on interest

icsys

Now that interest rates have risen back to the historical  'normal rates', the Personal Savings Allowance, introduced when interest rates were less than 1%, will open a can of worms.
It was far easer before the PSA as institutions deducted the tax owed at source, now this cannot be done I can see people (myself included) having their tax codes changed based on past assumptions and then a massive fight to get it corrected when interest earned drops again!

Dazed_and_C0nfused

icsys said:

Now that interest rates have risen back to the historical  'normal rates', the Personal Savings Allowance, introduced when interest rates were less than 1%, will open a can of worms.
It was far easer before the PSA as institutions deducted the tax owed at source, now this cannot be done I can see people (myself included) having their tax codes changed based on past assumptions and then a massive fight to get it corrected when interest earned drops again!

A bit dramatic!

If you know your tax code includes an excessive amount on relation to interest then you can just notify HMRC of your own estimates and have your tax code adjusted.

I think you have to provide the info for each individual account not just a global figure but it can easily be done.

safe_hands2

Mmm.. reading your posts I've gone from reassured back to wary again 😄.

I work full time and don't have loads of time to do battle with HMRC. In the online account, doors it show tax on interest separately from tax on income?

Bigwheels1111

safe_hands2 said:

Mmm.. reading your posts I've gone from reassured back to wary again 😄.

I work full time and don't have loads of time to do battle with HMRC. In the online account, doors it show tax on interest separately from tax on income?

I look at it this way, 2 years ago if you had 100k you would get 0.5% £500 on interest.

Today you would get 6k, take off tax 20% £4800 or at 40% tax £3600.

Still a win for me. 9.6 times 2 years ago or 7.2 times 2 years ago.

sheslookinhot

safe_hands2 said:

Mmm.. reading your posts I've gone from reassured back to wary again 😄.

I work full time and don't have loads of time to do battle with HMRC. In the online account, doors it show tax on interest separately from tax on income?

Wary about what ?

UVRay

Dazed_and_C0nfused said:

I would welcome the chance to self assess, rather than have to go through this tortuous process. 

Anyone can submit a self-assessment can they not, even if not required to do so?

I use the online self-assessment and you can fill in your details and get a summary without actually submitting it at the end if you wish.

safe_hands2

sheslookinhot said:

safe_hands2 said:

Mmm.. reading your posts I've gone from reassured back to wary again 😄.

I work full time and don't have loads of time to do battle with HMRC. In the online account, doors it show tax on interest separately from tax on income?

Wary about what ?

Like I said earlier, HMRC calculating the tax I owe incorrectly and me not understanding how it works fully to know and be able to put it right. 

poseidon1

I am with contributors who advocate maximising your interest income returns regardless of tax. The new normal for us in the UK will be increasing costs across the board which will require ever increasing income just to stand still. So making your money work as hard as possible seems to me a no brainer. 

As regards tax consequences, for those of us now  retired there is a case for completing an annual tax return, rather than relying on HMRC adjusting tax codes. I have been doing so since 2015 largely due to a complex mix of property, stockmarket and bank interest income. 

However, I see this annual chore and the administration and record keeping related thereto, as essential in helping to retain a level of mental acuity the older I get.  Having retired from a very mentally  demanding career, my concern has been the spectre of ailments such as dementia associated with reduced brain activity, so actively engaging with improving returns on investments and dealing with tax ramifications thereon is providing ( in my view) an important dual benefit. 

sheslookinhot

safe_hands2 said:

sheslookinhot said:

safe_hands2 said:

Mmm.. reading your posts I've gone from reassured back to wary again 😄.

I work full time and don't have loads of time to do battle with HMRC. In the online account, doors it show tax on interest separately from tax on income?

Wary about what ?

Like I said earlier, HMRC calculating the tax I owe incorrectly and me not understanding how it works fully to know and be able to put it right. 

HMRC calculate tax based on information provided by the lenders who have given you interest at any stage in the financial year. Unless your tax affairs are complicated I would suggest you have nothing to worry about. I do recognise that in a very few occasions  they may get it wrong.

Ocelot

Aristotle67 said:

I am in a similar boat as the OP in that I have work pension and savings, the latter being in a number of places. 

I am with bigwheels1111 in that I don't find tracking interest much of a hassle at all; in fact it is quite fun as I am always on the lookout for better returns and will switch accounts when favourable opportunites arise, so am constantly updating my tracking records. 18 months ago this was all quite new to me but I do not find it complicated or time consuming. I am always going to take the best I can find and see no reason to forgo extra interest when recording this it takes just a few minutes of my time. 

On a not dissimilar note, I am going to be introduced to Self Assessment for 2023-24 because I will exceed £10,000 in interest during this tax year. It would be possible to avoid this by buying the maximum allocation of premium bonds and putting some funds in lower interest accounts, but again I see no reason to do so. I gather it is not too complicated or time consuming, is nothing to be afraid of, and so I am not going to reduce the income from savings simply to avoid this. Holly Mead, in one of her Saturday columns in The Times a few months ago, suggested that some might prefer to invest in premium bonds rather than risk issues arising with HMRC getting their tax code wrong. I dare say that may be the case for some but even if that eventuality did occur I am sure it is nothing that couldn't be sorted out. There speaks someone who has never had any issues with tax and HMRC!

What's your tax code currently?