Tax on Interest

SPE57

We have a one year fixed interest account (joint account in my wife's and my name) due to mature in a couple of weeks. The provider has sent us options for the next 12 months with the interest rate they can offer. As the rate has increased, the interest we would be paid next year would be over both of our PSA's, so we would have to pay tax on part of the interest. I am currently looking at options such as moving part of the capital to an ISA as some have quite good interest rates.

As this is a joint account I assume that HRMC would apply tax to each of us on 50% of the total interest? My income is such that I would definitely pay tax on my half of the interest from this account, but my wife's income is lower - below the personal tax allowance at present. Am I right in thinking that she can earn extra interest over the 1K PSA without being subject to tax on interest from savings accounts? I had it in my mind that she can earn up to 5K in interest but I may be wrong! Would appreciate any advice on this issue - Thanks!

eskbanker

SPE57 said:

my wife's income is lower - below the personal tax allowance at present. Am I right in thinking that she can earn extra interest over the 1K PSA without being subject to tax on interest from savings accounts? I had it in my mind that she can earn up to 5K in interest but I may be wrong!

You're not wrong, as explained at https://www.moneysavingexpert.com/savings/tax-free-savings/

Dazed_and_C0nfused

She cannot use the £1,000 savings nil rate band until she has used both (and in this order) her Personal Allowance (£11,310 or £12,570) and the savings starter rate band (upto £5,000 taxed at 0%).

If her non savings non dividend income is less than her Personal Allowance she will be able to use the full £5,000 savings starter band.