Best way to avoid paying tax on savings

Middle_of_the_Road

eskbanker said:

Middle_of_the_Road said:

Albermarle said:

pookey said:

Thank you for all the replies. I think I'll top up my ISA and perhaps open up a monthly saver or 2 and then pay the tax on whatever is over the 1k limit

Just be aware that any tax due in tax year 23/24 ( this one) will be automatically calculated by HMRC around October 2024, and your tax code for 25/26 will be adjusted to collect the extra tax. That is how it usually seems to work anyway.

 I understand the point being made, but should this read 24/25?

No, the resultant changes to tax codes are applied from the start of the next full tax year, so tax arising from 2023/24 will be calculated during 2024/25 and then collected in 2025/26.

Thanks, I obviously did not understand the point being made.

pookey

Albermarle said:

pookey said:

Thank you for all the replies. I think I'll top up my ISA and perhaps open up a monthly saver or 2 and then pay the tax on whatever is over the 1k limit

Just be aware that any tax due in tax year 23/24 ( this one) will be automatically calculated by HMRC around October 2024, and your tax code for 25/26 will be adjusted to collect the extra tax. That is how it usually seems to work anyway.

Thank you.

Do they follow the national insurance number? 

 i usually have to declare it in my self assessment, but it would be much easier if they calculated it all 😅

Dazed_and_C0nfused

pookey said:

Albermarle said:

pookey said:

Thank you for all the replies. I think I'll top up my ISA and perhaps open up a monthly saver or 2 and then pay the tax on whatever is over the 1k limit

Just be aware that any tax due in tax year 23/24 ( this one) will be automatically calculated by HMRC around October 2024, and your tax code for 25/26 will be adjusted to collect the extra tax. That is how it usually seems to work anyway.

Thank you.

Do they follow the national insurance number? 

 i usually have to declare it in my self assessment, but it would be much easier if they calculated it all 😅

That explanation doesn't apply to anyone who completes a Self Assessment return.

Although it can sometimes be possible for your Self Assessment liability to be coded out in the same cycle.

Year 1 = income accrues
Year 2 = tax return completed for year 1 and liability is self assessed
Year 3 = liability for year 1 included in tax code for year 3

Bobblehat

Assuming you owe HMRC some money (say less than £1K) from 22/23, would there be any advantage/disadvantage in paying it off in one payment in 23/24 so that your 24/25 tax code(s) were left unaltered?

Dazed_and_C0nfused

Bobblehat said:

Assuming you owe HMRC some money (say less than £1K) from 22/23, would there be any advantage/disadvantage in paying it off in one payment in 23/24 so that your 24/25 tax code(s) were left unaltered?

Two typical points of view are,

1.  Pay it now and avoid complications with next year's tax code

2.  Don't pay it now as you can be earning yet more interest on the money still in your hands.  Basically it's an interest free loan from HMRC.

poppystar

Dazed_and_C0nfused said:

Bobblehat said:

Assuming you owe HMRC some money (say less than £1K) from 22/23, would there be any advantage/disadvantage in paying it off in one payment in 23/24 so that your 24/25 tax code(s) were left unaltered?

Two typical points of view are,

1.  Pay it now and avoid complications with next year's tax code

2.  Don't pay it now as you can be earning yet more interest on the money still in your hands.  Basically it's an interest free loan from HMRC.

Assuming I go with option 2 above to get around 5% on the tax owed for now then will next year’s tax code be changed to just get the money owed to HMRC for 22/23 back or to take double that amount on the assumption I would be due to pay the same for 23/24. I’m assuming they wouldn’t try to get 3x the amount to include 24/25 likely amount due as well! 

pecunianonolet

Hypothetically, what would happen if you have a £500 PSA in tax year 23-24, so the current tax year, you would earn £1000 in interest in that tax year.

You would be £500 over your limit so you pay 40% in tax, which would be £200. 

If I am not mistaken, banks and BS would report their numbers to HMRC in July 2024 (tax year 24/25) and in October 2024 you get your P800 and your tax code is amended and they start to collect the £200 tax from tax year 25/26.

Now, in January 2025 you quit your job and move abroad and stop being a tax resident in the UK. So, whatever your tax code would be for tax year 25/26, you have no longer income. Would HMRC now send you a letter to your new address abroad and make you pay £200 in a lump sum or would it just be carried forward indefinitely until you might ever return and become a tax resident in Uk again? Also,how would they know the foreign address?

Dazed_and_C0nfused

pecunianonolet said:

Hypothetically, what would happen if you have a £500 PSA in tax year 23-24, so the current tax year, you would earn £1000 in interest in that tax year.
There is no limit on how much interest anyone can earn.  But there is a maximum of £6,000 which can be taxed at 0%.  That is on top of the £12,570 that can be covered by the Personal Allowance.

You would be £500 over your limit so you pay 40% in tax, which would be £200. 
There may be additional tax due on top of the £200 if the taxable interest impacted HiCBC, tapered Personal Allowance or Married Couple's Allowance 

If I am not mistaken, banks and BS would report their numbers to HMRC in July 2024 (tax year 24/25) and in October 2024 you get your P800 and your tax code is amended and they start to collect the £200 tax from tax year 25/26.
That is the typical timeline yes although the banks should really report by the end of June.

Now, in January 2025 you quit your job and move abroad and stop being a tax resident in the UK. So, whatever your tax code would be for tax year 25/26, you have no longer income. Would HMRC now send you a letter to your new address abroad and make you pay £200 in a lump sum or would it just be carried forward indefinitely until you might ever return and become a tax resident in Uk again? Also,how would they know the foreign address?
You would move from a (informal) P800 situation to having a PA302 (Simple Assessment) which is enforceable by HMRC and appealable by you.  That might happen in January 2025 or possibly not until months later.
As an upstanding citizen you would have told them new address.

Comments in bold.

pecunianonolet

Dazed_and_C0nfused said:

pecunianonolet said:

Hypothetically, what would happen if you have a £500 PSA in tax year 23-24, so the current tax year, you would earn £1000 in interest in that tax year.
There is no limit on how much interest anyone can earn.  But there is a maximum of £6,000 which can be taxed at 0%.  That is on top of the £12,570 that can be covered by the Personal Allowance.
Interest is unlimited and I am aware of the personal allowance and the max interest, which can be earned if there is no other income, and essentially tax free. I wish I would be in that position. 

You would be £500 over your limit so you pay 40% in tax, which would be £200. 
There may be additional tax due on top of the £200 if the taxable interest impacted HiCBC, tapered Personal Allowance or Married Couple's Allowance 
True, should have made ist clear that it was just an example for an unmarried person without children but good points to consider.

If I am not mistaken, banks and BS would report their numbers to HMRC in July 2024 (tax year 24/25) and in October 2024 you get your P800 and your tax code is amended and they start to collect the £200 tax from tax year 25/26.
That is the typical timeline yes although the banks should really report by the end of June.
Thanks

Now, in January 2025 you quit your job and move abroad and stop being a tax resident in the UK. So, whatever your tax code would be for tax year 25/26, you have no longer income. Would HMRC now send you a letter to your new address abroad and make you pay £200 in a lump sum or would it just be carried forward indefinitely until you might ever return and become a tax resident in Uk again? Also,how would they know the foreign address?
You would move from a (informal) P800 situation to having a PA302 (Simple Assessment) which is enforceable by HMRC and appealable by you.  That might happen in January 2025 or possibly not until months later.
As an upstanding citizen you would have told them new address.
Wasn't aware of the PA302 so most helpful. I think even if you moved abroad and give up having an address in the UK you would still count as tax resident for another 183 days, taking January 2025 into account as moving date. So to me timing the time of moving could have tax implications and time time should be planned wisely. Yes, I would inform HMRC about the address as it could otherwise lead to severe problems nobody wants to have for such a small amount.
https://www.gov.uk/tax-foreign-income/residence

Comments in bold.

Responses in italic.