Additional Rate Taxed Savings ... what to do?!

RSharkR

Hello everyone,

This year (and maybe only this year) I'm an additional rate taxpayer. Due to a house sale I've had a fair amount of cash sat in a high interest account all year, and this has accrued about £9k of interest! (Barclays Blue Rewards Saver 3.5%) I've already used my £20k ISA allowance so am wondering what is best to do now?

Will I be taxed on this interest regardless of what I do with it, because I've already earned it in my own account? Or if I transfer it elsewhere can it be 'discounted' ... for example if I put the whole £9k into a pension, will this avoid tax on it? Or if I transferred some of it into my partners name to use her personal allowance? Or into my daughter's child stocks & share ISA? Or are all of these already hopeless because I'll get taxed on it regardless?

At 45% tax I'd end up with about £5k so its not a complete loss, but clearly I want to keep as much of the remaining £4k as possible! I am registered for self assessment but assume my bank reports my savings? 

Separately, I'll need to think about what is best to do next year, apart from just using another £20k ISA allowance. I know I could put £50k into premium bonds but return is about 1-2% whereas even after tax I'm ending up at about 1.9% in my current situation. 

Any help and advice would be much appreciated! 

eskbanker

RSharkR said:

This year (and maybe only this year) I'm an additional rate taxpayer. Due to a house sale I've had a fair amount of cash sat in a high interest account all year, and this has accrued about £9k of interest! (Barclays Blue Rewards Saver 3.5%)

When you say 'accrued', has this interest actually been paid?

RSharkR said:

Separately, I'll need to think about what is best to do next year, apart from just using another £20k ISA allowance. I know I could put £50k into premium bonds but return is about 1-2% whereas even after tax I'm ending up at about 1.9% in my current situation. 

The median (aka 'average luck') return from £50K of premium bonds for a year is 3.85% at the current rate.

Albermarle

I know I could put £50k into premium bonds but return is about 1-2% 

As above the current prize rate is well above that and with a full £50K, you are likely to get something pretty close to that.

As it is tax free, then for an additional rate taxpayer, it is effectively an interest rate of 8.5% . So would have been a good idea to have the max £50K and even going forward they are still a good deal for a 40% taxpayer.

RSharkR

Thank you both @eskbanker & @Albermarle for your comments. 

Yes, the interest has been paid into my account monthly, its currently about £800 per month.

That's really useful calculation on the Premium Bonds, I think as soon as this tax year is out the way it makes sense for me to (a) put another £20k in ISAs and (b) put £50k in premium bonds. I had previously had £50k in premium bonds a year or so ago and calculated my win rate at about 1.5% but maybe I was just unlucky! I also have a premium bond account for my daughter which I can use. Foolishly I took it all out of there to put into this bank account because the interest seemed so much more favourable. 

Dazed_and_C0nfused

RSharkR said:

Thank you both @eskbanker & @Albermarle for your comments. 

Yes, the interest has been paid into my account monthly, its currently about £800 per month.

That's really useful calculation on the Premium Bonds, I think as soon as this tax year is out the way it makes sense for me to (a) put another £20k in ISAs and (b) put £50k in premium bonds. I had previously had £50k in premium bonds a year or so ago and calculated my win rate at about 1.5% but maybe I was just unlucky! I also have a premium bond account for my daughter which I can use. Foolishly I took it all out of there to put into this bank account because the interest seemed so much more favourable. 

You cannot turn back time and change what has already happened.

If you have been paid ~£9k interest (outside of an ISA) then you will include that income on your Self Assessment return and tax will be calculated with this factored in.

Buying Premium Bonds would reduce future interest but have no bearing on the £9k already earned.

Pension contributions might change your tax position but in best case scenario are unlikely to make much difference really.

Potentially £500 would be taxed at 0% and the rest at 40% rather than 45%.

Albermarle

 I had previously had £50k in premium bonds a year or so ago and calculated my win rate at about 1.5% but maybe I was just unlucky

It is possible to have an unlucky run, and it is also possible to get one bigger prize that bumps up the return.

However  with the full £50K you would normally expect to get an average around the 3.8% over 12 months, with the current prize rate 

GrubbyGirl_2

Definitely premium bonds.  In the 2023/24 my return was 4.95% so not too shabby, but there are no guarantees,  I've had the full amount for 11 years and I've got less than the payable interest rate 6 times and over the interest rate 5 times