Tax on Savings

Molly4

Good Morning

This may be simple and come easy to some but not myself so please be patient. 

Firstly I would like to know at what point do you start paying Income Tax on your Savings? 

I am on a very low income but it is just over the £12,750 Personal Allowance threshold so I pay Income Tax at the normal rate on the rest.

I have an ISA Account with Virgin Money which is currently paying 5.45% Interest. This is a Fixed Rate ISA for One Year which I have just opened and I know this is Tax free. 

I also hold an Income Bond Account with NS&I which is also Tax free. The NS&I Account is currently paying 3.45% AER.

And I have another Savings Account with Virgin Money which is currently paying 3.55% AER. 

My main query is: 

Am I better off transferring my Savings from the NS&I Account (3.45%) into the Virgin Money Saving Account (3.55%) to get the slightly higher Interest amount and which is taxable?

Or the other way round - Transferring the Savings from my Virgin Money Account into the NS&I Account with the slightly lower Interest rate and is non taxable? 

My instinct is saying the later is best. Get 0.10% less Interest rather than paying Income Tax at 20%. 

Hope this makes sense. 

Regards


Molly4 

ColdIron

Molly4 said:

I am on a very low income but it is just over the £12,750 Personal Allowance threshold so I pay Income Tax at the normal rate on the rest.

£12,570

I also hold an Income Bond Account with NS&I which is also Tax free. The NS&I Account is currently paying 3.45% AER.

The Income Bond is not tax tree

• Will you pay tax?
• Yes: tax on your gross interest

https://www.nsandi.com/products/income-bonds

Molly4

ColdIron said:

Molly4 said:

I am on a very low income but it is just over the £12,750 Personal Allowance threshold so I pay Income Tax at the normal rate on the rest.

£12,570

I also hold an Income Bond Account with NS&I which is also Tax free. The NS&I Account is currently paying 3.45% AER.

The Income Bond is not tax tree

• Will you pay tax?
• Yes: tax on your gross interest

https://www.nsandi.com/products/income-bonds

Thank you ColdIron. Has the Income Bond ever been Tax free? 

I was sure it was but I am obviously wrong. I opened the Account a few years ago and at the time I was going through a major health battle so may have got confused. 

So it sounds like my best option is to transfer my Savings from the Income Bond to the Virgin Money Savings Account to attract the slightly higher Interest Rate at present. Or am I wrong again? 

I know there are other Savings Accounts attracting even higher Interest Rates but I need to have an Easy Access Account. 

Dazed_and_C0nfused

I am on a very low income but it is just over the £12,750 Personal Allowance threshold so I pay Income Tax at the normal rate on the rest.

That should be £12,570.  It all depends on how much over £12,570 you earn but if we use £13,400 as an example then you would be able to earn £5,170 in interest before paying any tax.

The first £4,170 would be taxed at 0% because you would have some of the savings starter rate band left to use.

And the next £1,000 would also be taxed at 0% as you can then use the savings nil rate band (aka Personal Savings Allowance).

Interest from Cash ISA's is tax exempt but interest from NS&I Income Bonds is taxable just like a normal bank or building society account.

ColdIron

Molly4 said:

ColdIron said:

Molly4 said:

I am on a very low income but it is just over the £12,750 Personal Allowance threshold so I pay Income Tax at the normal rate on the rest.

£12,570

I also hold an Income Bond Account with NS&I which is also Tax free. The NS&I Account is currently paying 3.45% AER.

The Income Bond is not tax tree

• Will you pay tax?
• Yes: tax on your gross interest

https://www.nsandi.com/products/income-bonds

Thank you ColdIron. Has the Income Bond ever been Tax free?

I don't think so. ISA and Premium bonds only now and a few legacy accounts like Index Linked Savings Certificates

I know there are other Savings Accounts attracting even higher Interest Rates but I need to have an Easy Access Account. 

Plenty of easy access accounts paying 1.00% or more than your 2 accounts

https://forums.moneysavingexpert.com/discussion/comment/79538594/#Comment_79538594

Molly4

@Dazed_and_C0nfused Thank you. 

Yes I transposed the figures for the Personal Tax Allowance. 

At present there is no chance I am going to earn £5,170 in Interest on my Savings. So it looks like I won't be paying any Tax on my Savings in this Tax year unless my circumstances change dramatically for the better. 

@ColdIron As I said previously I was going through major health problems when I opened the Income Bond so I must have opened it because it was "Easy Access" and offering a good Interest Rate at the time. 

So putting it simply. You pay Tax on all Savings Accounts except ISA's and dependent on the amount of Interest earned. Do you pay Tax on the Balance in your Current Account? 

With regards to other Easy Access Accounts paying more Interest than my 2 Accounts. I have just recently transferred money from an Easy Access ISA into a Fixed Rate (I Year) ISA with a higher Interest Rate and that was quite confusing for me. So I will look into the Higher Rate Easy Access Savings Accounts soon.   

Sg28

Molly4 said:

Good Morning

This may be simple and come easy to some but not myself so please be patient. 

Firstly I would like to know at what point do you start paying Income Tax on your Savings? 

I am on a very low income but it is just over the £12,750 Personal Allowance threshold so I pay Income Tax at the normal rate on the rest.

I have an ISA Account with Virgin Money which is currently paying 5.45% Interest. This is a Fixed Rate ISA for One Year which I have just opened and I know this is Tax free. 

I also hold an Income Bond Account with NS&I which is also Tax free. The NS&I Account is currently paying 3.45% AER.

And I have another Savings Account with Virgin Money which is currently paying 3.55% AER. 

My main query is: 

Am I better off transferring my Savings from the NS&I Account (3.45%) into the Virgin Money Saving Account (3.55%) to get the slightly higher Interest amount and which is taxable?

Or the other way round - Transferring the Savings from my Virgin Money Account into the NS&I Account with the slightly lower Interest rate and is non taxable? 

My instinct is saying the later is best. Get 0.10% less Interest rather than paying Income Tax at 20%. 

Hope this makes sense. 

Regards


Molly4 

Assuming no other income its unlikely you will pay any tax on your savings unless you have a very large amount.

Your best option would be to move the money from NS&I and Virgin to one of the higher paying easy access accounts. 

What is your exact income and how much do you have saved?

Molly4

@Sg28 Thank You. 

I'm sorry I am not going to divulge how much Income and Savings I have. 

Dazed_and_C0nfused

So putting it simply. You pay Tax on all Savings Accounts except ISA's and dependent on the amount of Interest earned. Do you pay Tax on the Balance in your Current Account? 

Yes, but from what you have posted you will have a lot of the 0% tax bands to use so although all your non ISA interest will be taxed there will be nothing to pay as the tax rate is 0%.

You never pay tax on the balance of an account, it's the interest that is taxable, not the capital.

Sg28

Molly4 said:

@Sg28 Thank You. 

I'm sorry I am not going to divulge how much Income and Savings I have. 

Fair enough, but you won't be able to get specific advice thats relevant to your personal circumstances.

You could use rough figures.

Edit: I missed your post directly above my previous one. Yes you dont need to give any figures all the relevant info is there.

Dazed_and_C0nfused

And how much you have in savings really isn't of any relevance.

You could have £100k earning 6% or £500k earning 1%