Interest allowance

simpson_77

Hi,

The situation is i'm an additional rate tax payer with no savings interest allowance and my wife is self employed with typical earnings of around £6k on her tax return each year.

As I can't earn tax free interest we typically move any spare cash into savings accounts in my wife's name once ISA's are maxed for the year. I've been trying to get my head around how much interest she can earn before she is liable for any tax. From what i've read there is £1k + an extra £5k interest allowance, is this correct or is it just the £1k?

Any help appreciated

eskbanker

https://www.moneysavingexpert.com/savings/tax-free-savings/ explains the allowances and how they interact.

ColdIron

It's £12,570 less earnings plus £5,000 starting rate for savings plus £1,000 personal savings allowance

Dazed_and_C0nfused

simpson_77 said:

Hi,

The situation is i'm an additional rate tax payer with no savings interest allowance and my wife is self employed with typical earnings of around £6k on her tax return each year.

As I can't earn tax free interest we typically move any spare cash into savings accounts in my wife's name once ISA's are maxed for the year. I've been trying to get my head around how much interest she can earn before she is liable for any tax. From what i've read there is £1k + an extra £5k interest allowance, is this correct or is it just the £1k?

Any help appreciated

The £1,000 is the last thing available.

She has to use her remaining Personal Allowance first.

Then the savings starter rate must be used (£5,000 interest taxed at 0%).

And only once that has been used can the £1,000 savings nil rate band be used.

simpson_77

thanks all for the reponses, so am i right in thinking she has £12,750 (person tax allowance) - £6k (earnings) + £5k (starter rate) + £1k = £12,750 Interest earnt before tax is deducted? If this is the case we can have £255k in savings @ 5% earing £12,750 pa in interest?

Albermarle

simpson_77 said:

thanks all for the reponses, so am i right in thinking she has £12,750 (person tax allowance) - £6k (earnings) + £5k (starter rate) + £1k = £12,750 Interest earnt before tax is deducted? If this is the case we can have £255k in savings @ 5% earing £12,750 pa in interest?

Yes, except it is £12,570 

ColdIron

Tax is not deducted automatically and it's £12,570 not £12,750 so £251,400 but otherwise yes

simpson_77

Great thanks for the advise