Tax on savings interest

snowmen

Not sure if this is best posted here or elsewhere - please direct as required.
The situation is -

Someone is not in employment with no pension income, but will go over their personal savings allowance this year due to interest earned from savings accounts.
What should they do to report this to HMRC (do they even need to or will it flag up to then automatically?)
How should they arrange payment of what is due?

Many thanks.

Flugelhorn

is it over about 18k?

Dazed_and_C0nfused

snowmen said:

Not sure if this is best posted here or elsewhere - please direct as required.
The situation is -

Someone is not in employment with no pension income, but will go over their personal savings allowance this year due to interest earned from savings accounts.
What should they do to report this to HMRC (do they even need to or will it flag up to then automatically?)
How should they arrange payment of what is due?

Many thanks.

You cannot use the Personal Savings Allowance (really a 0% tax band) unless you have used all your Personal Allowance and any available savings starter rate band.

So what is using their Personal Allowance?

snowmen

Thanks both!

So am I right in thinking in this situation that they use their personal allowance of 12,570 first
then 5,000 for the starting savings rate as they are not earning
and then 1,000 for the personal savings allowance
giving 18,570 in total that can be earned in savings interest before any tax is due?

If they are getting more interest than that what should they do?

Dazed_and_C0nfused

snowmen said:

Thanks both!

So am I right in thinking in this situation that they use their personal allowance of 12,570 first
then 5,000 for the starting savings rate as they are not earning
and then 1,000 for the personal savings allowance
giving 18,570 in total that can be earned in savings interest before any tax is due?

If they are getting more interest than that what should they do?

Unless they have applied for Marriage Allowance then yes.

If they have applied for Marriage Allowance then their Personal Allowance will only be £11,310.

But if they have no non savings non dividend income like earnings or pension income they would still be able to use the full savings starter rate band (and the £1,000).

If they have interest of £10k or more HMRC want them to complete a tax return, irrespective of whether any tax is owed.

EthicsGradient

If you complete a Self Assessment tax return, report any interest earned on savings there.

You need to register for Self Assessment if your income from savings and investments is over £10,000. Check if you need to send a tax return if you’re not sure.

If you’re not employed, do not get a pension or do not complete Self Assessment, your bank or building society will tell HMRC how much interest you received at the end of the year. HMRC will tell you if you need to pay tax and how to pay it.

https://www.gov.uk/apply-tax-free-interest-on-savings

Or, from an HMRC forum answer:

For savings interest this is classed as 'investment income' if someone receives more than £10,000 of investment income they are required to submit a Self-Assessment tax return to declare this.

If you are not required to complete a tax return, there is no set form for declaring investment income.

Financial institutions will declare savings interest that is not held in ISA accounts to HMRC, and we will update our records accordingly.

If you wish to do this before then, you will need to provide details of the accounts that you receive interest from by contacting our Income Tax team by telephone or in writing.

Declarining savings interest - Community Forum - GOV.UK (hmrc.gov.uk)

Albermarle

snowmen said:

Thanks both!

So am I right in thinking in this situation that they use their personal allowance of 12,570 first
then 5,000 for the starting savings rate as they are not earning
and then 1,000 for the personal savings allowance
giving 18,570 in total that can be earned in savings interest before any tax is due?

If they are getting more interest than that what should they do?

Apart from tax they may wish to consider why they have such a large amount in cash savings ( £400K ?).