Tax on Savings Interest

If you get more that £1000 interest a year you need to declare it to HMRC how do you do it and when? It has been earned this tax year when do i know how much you have earned  and how and when do you need to tell HMRC by Jan 31 2024 or 2025? There seems to be very little info about this online , but because savings rates have gone up i guess quite a few people will need to do something about this?

Comments

  • HMRC have a form I believe or you can just put it on your self assessment if you do one.
    You need to add up any interest actually received from 6th April 2023 to 5th April 2024.
    So if you have already breached the £1000, you could move your savings to a different account which pays the interest after the end of the tax year. Often you can change your interest to annual from monthly too, depends on your provider.
    Or open a cash ISA if you haven't already done so

  • eskbanker
    eskbanker Posts: 29,851
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    You don't need to inform HMRC (unless you receive more than £10K in interest), as the banks and building societies do it for you.

    It'll generally be sensible to keep your own records of interest received, in order to validate what HMRC are told.
  • Albermarle
    Albermarle Posts: 21,099
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    If you get more that £1000 interest a year you don't normally need to declare it to HMRC 

    Unless

    You earn more than £10K in interest.

    Or unless you are filling in a self assessment tax return for other reasons, then you would have to fill in the interest box. Your savings provider will provide you with an interest statement once the tax year is over.

    As said any interest earned in a Cash ISA, is not taxable and should never be reported to HMRC.

  • Only recently I received a letter from HMRC to inform me that I had underpaid tax due. It was a simple task to set up an account with them where I was able to pay directly or have it taken from next year's income. Under present interest rates it looks likely I will have to pay tax on my interest for a while.
  • Ocelot
    Ocelot Posts: 490
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    Unless you already fill in a tax return, they will adjust your tax code to cater for this (it will do down).

    Let's say you are basic rate taxpayer, with a tax free allowance of 12,570, and earn £1500 in interest in the 2023/24 tax year: The bank or building society will report the 1500 to HMRC, usually around June 2024, and your tax free allowance goes down to 12,070 in the 2025/26 tax year, so you are paying tax on the £500 over your Personal savings allowance (£1000). This is likely to take place irrespective of whether you can access the interest in that tax year (say you have a 3-5 year fixed rate), unless you report to HMRC that you cannot access the interest until the end of the term (and they accept this).

    They usually assume you are still earning the same interest the following year (even though you may not be), and your tax code may remain lowered for the following year, too, although, come reporting time, they should realise this and refund you the extra amount of tax they assumed you would earn.

    When you have multiple accounts of varying terms it can get quite messy and hard to check their calculations (the hell I live in).

    A lowered tax threshold also means that you could be pushed into the higher rate, if you are borderline, as the higher rate threshold also lowers by the same amount.

    If you are able to persuade HMRC that you cannot access the interest on a longer term fix (no experience of this), the final year's tax liability will be the sum of the interest you earned during the entire term, minus your PSA, so will be higher.

    If you fill in a tax return (or offer to pay so as not to affect your allowances) it is a lot easier.
  • rancid-a
    rancid-a Posts: 392
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    edited 4 December 2023 at 8:03PM
    Thank you everyone, this is exactly the kind of info I was looking for.

    I've been pondering whether or not to move my inherited savings into a fixed rate savings account. I'm not really keen on filling in any forms and that put me off taking the next step. However if paying the tax man back is as simple as opening an account and paying that way or waiting for a bill, then I think I will go ahead and open an account. I'm just a low wage worker, and I imagine my predicted interest would be about £2300 at the end of the 1 year term.

    Just to confrm, The tax i would need to pay eventually is 20% of £1300, not 20% of £2300?


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  • Dazed_and_C0nfused
    Dazed_and_C0nfused Posts: 12,748
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    edited 4 December 2023 at 8:17PM
    rancid-a said:
    Thank you everyone, this is exactly the kind of info I was looking for.

    I've been pondering whether or not to move my inherited savings into a fixed rate savings account. I'm not really keen on filling in any forms and that put me off taking the next step. However if paying the tax man back is as simple as opening an account and paying that way or waiting for a bill, then I think I will go ahead and open an account. I'm just a low wage worker, and I imagine my predicted interest would be about £2300 at the end of the 1 year term.

    Just to confrm, The tax i would need to pay eventually is 20% of £1300, not 20% of £2300?


    That depends on how much of the interest is taxed at 0%.

    Most basic rate payers have £1,000 taxed at 0% so in your example £1,300 would be taxed at 20%.

    But some lower earnings basic rate payers have some savings starter rate band available (also 0% tax rate) so less will end up being taxed at 20%.

    For example if your non savings non dividend income (taxable earnings, pension income etc) was £17,000 then you would normally have £570 of the savings starter rate band available meaning £1,570 in total was taxed at 0% and only £730 would be taxed at 20%.
  • Thank you to everyone who commented . I already moved as much as i could into a Cash ISA last year and  this year and also bought premium bonds so that i could make the most of what i could tax free. We were supposed to have bought a house last year (we had inherited some money) but we got caught in the mini budget of 2023 and the monthly costs became silly overnight so we pulled out. I wasn't sure what i needed to do or when. I have moved the money into accounts that were giving the best interest rates ( even changed my main bank)  so i needed to know if i needed to do a tax return in January.( Interests rates only started going up this year) but from the sounds of it i will only know after the financial year ends in April 2024 how much interest i have been paid. Presumably if i go down the Tax return route i would have to complete it by 31st January 2025.
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