Savings tax

CraigC94

Hello,

I have a query regarding savings tax. 

Between April and May 2023, I was a basic rate tax payer with a £1k PSA. However, from June onwards, I have been a higher rate tax payer which I know reduces the PSA to £500.

I’m lucky enough to have some substantial savings (which I will be moving into an ISA now I am taxed at the higher rate, but which I will have to do over a couple of tax years due to the ISA limits). 

My question is, will I be taxed at 20% for the interest earned whilst I was a basic rate payer (minus the £1k PSA), and 40% from when I became a higher rate payer (minus the £500 PSA), or will all of the interest earned (which I calculate will be in the region of 2.5-3k for 23/24) be taxed at 40% (minus the £500 PSA)? 

I am just trying to calculate my likely tax bill before I move the first batch of savings into an ISA, which I intend to do this tax year and on 6 April 2024. 

Dazed_and_C0nfused

Your tax position is determined annually.

If, ignoring the savings nil rate band, you are deemed a higher rate payer in 2023-24 then only the first £500 will be taxed at 0%.

If you are a basic rate payer the first £1,000 will be taxed at 0%.

The interest will all count towards your adjusted net income if HICBC is a factor for you.

Reed_Richards

If you are now being taxed at the higher rate it is because HMRC anticipate that your total income for this tax year will place you in the higher rate tax band.  The fact that you got a pay rise in June (or some such) is neither here nor there, you are taxed on your total earnings for the year and your interest is taxed on the same basis.    

ail_2

Help please. I am a basic rate taxpayer and only income is an occupational pension and have maxed out ISA allowance but I have other savings which, by the end of October will have earned about 8500  in interest . All savings are in UK accounts . Will the banks tell the taxman about the interest and the taxman sends me a bil or do I have to declare to the taxman.The combination of occupational pension and interest will keep me under 40% threshold . How do I work out how much I will be taxed. Thanks in advance for your help

Albermarle

ail_2 said:

Help please. I am a basic rate taxpayer and only income is an occupational pension and have maxed out ISA allowance but I have other savings which, by the end of October will have earned about 8500  in interest . All savings are in UK accounts . Will the banks tell the taxman about the interest and the taxman sends me a bil or do I have to declare to the taxman.The combination of occupational pension and interest will keep me under 40% threshold . How do I work out how much I will be taxed. Thanks in advance for your help

Yes the providers will inform HMRC of the interest. Your tax position for 23/24 will be automatically calculated in the next few weeks and the P800 calculation will be sent to you ( or you can see it on line)
If you owe tax, they may ask for a payment, or just adjust your tax code for 25/26, so you will pay more tax on your pension.
If you supply figures for your pension income ( including state pension if you are getting it) someone here will be able to give you an idea of what tax you will have to pay.

Dazed_and_C0nfused

ail_2 said:

Help please. I am a basic rate taxpayer and only income is an occupational pension and have maxed out ISA allowance but I have other savings which, by the end of October will have earned about 8500  in interest . All savings are in UK accounts . Will the banks tell the taxman about the interest and the taxman sends me a bil or do I have to declare to the taxman.The combination of occupational pension and interest will keep me under 40% threshold . How do I work out how much I will be taxed. Thanks in advance for your help

Not sure what the relevance of the end of October is 🤔

It's the interest received in the tax year as a whole which matters.

If that reaches £10,000 (in a tax year) then HMRC expect you to register for Self Assessment and file a tax return.  If you don't get £10,000 then HMRC will calculate the tax due using the information banks and building societies send them each year.

You will be taxed on all of the (non ISA) interest but the first £500 or £1,000 will be taxed at 0%.

You would usually be notified of any tax due for 2023-24 in the next month or two.