Tax on Savings Interest

AP1927

Hi
I currently have £40k in a one year fixed savings account (4.6% AER) that is about to mature.
Unfortunately I am going to be taxed 20%  on ~£700 of the the interest I’ve earned during this FY, so, I’ve decided only to reinvest an amount that will yield me £970 next FY and therefore be tax exempt.

I also currently have £20k in a 1 year ISA which will mature in Feb 24; I will utilise the full allowance again by adding another £20k to the pot (and transfer to another 1 year fixed ISA).

Both of these actions are maximising what I can currently accrue on my savings.

My question is, should I be adding more money to 1 year Fixed Savings account knowing that I will be taxed at the lower rate (20%) on every £1 in interest I earn over £1,000? 

I cannot put any more in a Cash ISA and I’m not interested in a Stocks & Shares ISA.

Should I be putting more into the savings account? I have 14 days to decide if I should so. 

Any advice would be much appreciated!
Thanks

poppystar

Yes, you’ll get 80% of the interest is generates. 

[Deleted User]

Hi,

AP1927 said:

I’ve decided only to reinvest an amount that will yield me £970 next FY and therefore be tax exempt.

so what about any surplus cash, you'd rather forego 80% interest than pay 20% tax on interest earned?

refluxer

AP1927 said:

I also currently have £20k in a 1 year ISA which will mature in Feb 24; I will utilise the full allowance again by adding another £20k to the pot (and transfer to another 1 year fixed ISA).

If you're going to exceed your PSA with the interest generated from the maturing fixed rate account and you haven't used any of your ISA allowance for the current tax year, then it would make sense to open a fixed rate ISA with the full £20k as soon as the (non-ISA) fixed rate account matures - there is no need to wait until your current fixed rate ISA matures next February and if you do wait, you'll obviously be taxed on any interest that money generates in the meantime.

AP1927

frugalmacdugal said:

Hi,

AP1927 said:

I’ve decided only to reinvest an amount that will yield me £970 next FY and therefore be tax exempt.

so what about any surplus cash, you'd rather forego 80% interest than pay 20% tax on interest earned?

That’s what I wasn’t sure about, but when you stare it like that it’s a no brainer. It makes sense to top up my savings account then. 

Thank you

AP1927

Thank you everyone, I have the answer I was looking for.

P1Fanatic

Have you looked at tax efficiencies elsewhere e.g. increase pension contributions? Another option to avoid tax is premium bonds (winnings are tax free and you can invest up to £50k max holding)