Declaring savings interest earned over £1k

A_New_Start

Hello, this has most likely been asked here but would like a fresh perspective on a (I guess nice to have) query.

I'm more than likely to exceed the PSA of £1k for 23-24 FY by around £500 of interest earned (£1500 total). So I will have a tax bill of £100 (20% tax bracket earner). I have maxed out my ISA allowance for the year.

I'm ok with this but I'm not sure how it is collected.

I read on the HMRC website that the banks send info on interest paid out and HMRC calculate the tax due and change your tax code accordingly. I'm worried how accurate this is. I saw post on here that if that route is chosen that there is a fair chance it will be wrong and I will have to spend time sorting it out.

The issue I see is that this has been collected over 6 different banks since April. I have kept a running monthly total of what interest ( to the penny) has been paid in each month from each bank and I never really had to consider this scenario before due to low interest rates in previous years. Will all this info passed over from the banks be accurate? Can I see this info myself?

I was hoping I could self declare the interest received and have the tax calculated and I pay this as a one off payment back to HMRC?

I'm also contemplating whether it would be worth placing any savings outside of ISA's into premium bonds to potentially minimize the excess tax charge.

Any help or advice will be appreciated.

SORRY I PUT IN ISA DISCUSSION PLEASE MOVE TO AN APPROPIATE CAETGORY

CaveBird

Interested to hear what people think about this. We’ve had an inheritance that is being invested short-term 2 years) while we wait for our mortgage deal to expire. I’d rather not have my tax code amended and then have to fight to get it changed back again once we’ve used the savings to pay off the mortgage!

Dazed_and_C0nfused

CaveBird said:

Interested to hear what people think about this. We’ve had an inheritance that is being invested short-term 2 years) while we wait for our mortgage deal to expire. I’d rather not have my tax code amended and then have to fight to get it changed back again once we’ve used the savings to pay off the mortgage!

Why would there be a fight 🤔.

In the scenario outlined your tax code could be amended for two distinct reasons,

1.  To collect tax owed from an earlier tax year.
2.  To provisionally collect tax due in the current tax year using the prior years interest as an estimate.

If 2 happened then you simply need to provide your own estimate of the interest you'll receive in the current tax year and HMRC will review your tax code.

The only complication seems to be that they require details of each individual account rather than a single global figure so if you have multiple accounts they need an estimate for each one.

masonic

It rarely makes sense to take any action purely from the perspective of reducing the amount of tax you pay. It is better to seek to maximise your net income, which often necessitates paying more tax. A basic rate taxpayer with average luck is unlikely to be better off in premium bonds.

If you have detailed records of the interest you have received, then you can phone HMRC and run through this with them to ensure you pay only what you need to. The figures reported to HMRC may not be accurate for various reasons. Certain concierge providers, such as Raisin and HL Active Savings, don't report figures to HMRC, and the underlying savings providers cannot do so under that type of arrangement. Multi-year fixed term accounts are reported as if they paid interest when credited to the account, when interest actually arises and is taxable at maturity.

Albermarle

Certain concierge providers, such as Raisin and HL Active Savings, don't report figures to HMRC, and the underlying savings providers cannot do so under that type of arrangement

That is going to cause a lot of problems in future as many ( most?), will be unaware that they need to self report interest, if using these services. Could be a big tax bill on the way for some in future....

Frogletina

I've checked my tax code every year since HMRC have deducted the amount of tax due to to interest being over £1000. Although initially it may be estimated, and the wrong amount taken, this is always corrected in a later year. 

I have a lot of accounts and keep good records. 

The first year I was way over £1000, but estimating this year to be only about £150 over.

Bigwheels1111

I’ve never had enough savings interest to even need to look at my tax code until now.
In 2023-2024 I will exceed 10k, thus needing to file a self assessment.
I already have access to the system as was self employed.
Very simple job, only 2 boxes to fill out.
Earnings and interest.
I keep accurate records and will not be relying on bank and building societies to report the exact amount earned.
I update the total every month on my list and will be ready on the 6th of April to file my return.

savit4l8er

Albermarle said:

Certain concierge providers, such as Raisin and HL Active Savings, don't report figures to HMRC, and the underlying savings providers cannot do so under that type of arrangement

That is going to cause a lot of problems in future as many ( most?), will be unaware that they need to self report interest, if using these services. Could be a big tax bill on the way for some in future....

I don't use those services but I didn't know about the reporting bit.  Might have discovered one way or another if I used them but useful to know in advance. 👍

Sea_Shell

masonic said:

It rarely makes sense to take any action purely from the perspective of reducing the amount of tax you pay. It is better to seek to maximise your net income, which often necessitates paying more tax. A basic rate taxpayer with average luck is unlikely to be better off in premium bonds.

If you have detailed records of the interest you have received, then you can phone HMRC and run through this with them to ensure you pay only what you need to. The figures reported to HMRC may not be accurate for various reasons. Certain concierge providers, such as Raisin and HL Active Savings, don't report figures to HMRC, and the underlying savings providers cannot do so under that type of arrangement. Multi-year fixed term accounts are reported as if they paid interest when credited to the account, when interest actually arises and is taxable at maturity.

I didn't know that.   

At the moment, I have no other taxable income, so I don't have a "limit" as such for interest, but I will probably exceed £1000 this tax year.

Do I need to do anything, as I have significant savings with Raisin?

Or do I just have to keep good records and only make a declaration once tax would be payable (when I start to draw pension etc)?

Doctor_Who

Sea_Shell said:

masonic said:

It rarely makes sense to take any action purely from the perspective of reducing the amount of tax you pay. It is better to seek to maximise your net income, which often necessitates paying more tax. A basic rate taxpayer with average luck is unlikely to be better off in premium bonds.

If you have detailed records of the interest you have received, then you can phone HMRC and run through this with them to ensure you pay only what you need to. The figures reported to HMRC may not be accurate for various reasons. Certain concierge providers, such as Raisin and HL Active Savings, don't report figures to HMRC, and the underlying savings providers cannot do so under that type of arrangement. Multi-year fixed term accounts are reported as if they paid interest when credited to the account, when interest actually arises and is taxable at maturity.

I didn't know that.   

At the moment, I have no other taxable income, so I don't have a "limit" as such for interest, but I will probably exceed £1000 this tax year.

Do I need to do anything, as I have significant savings with Raisin?

Or do I just have to keep good records and only make a declaration once tax would be payable (when I start to draw pension etc)?

If you have no other taxable income then your savings interest can use the £12,570 personal allowance, then the £5000 starter savings rate, then the £1000 PSA (the latter two taxed @ 0%). Hence, upto £18,570 of savings interest can be tax free. Do you have a personal tax account at Gov.uk? You can update estimated earned and non-earned income and HMRC will adjust your tax code, but if you don't use PAYE the code will be irrelevant. As long as savings interest is less than £18,570 and you have no other taxed income then just keep good records of your annual interest. If it goes above £10K then you do need to register for self assessment.

Sea_Shell

Thanks for that.   I'm nowhere near £10k interest, so I don't have to worry for a few years 😉.  I do have a .GOV account, and was disappointed that they took away the facility to see what had been declared by each bank.  It was a handy cross reference.

I've got a detailed spreadsheet 😉


So, how would HMRC find out about interest earned on the Raisin platform if the banks don't report* and you don't submit a tax return?   So easy to fall through the cracks for the unwary.



* I thought all banks were obliged to submit this information, regardless of whether they're under an "umbrella" ?