tax due on interest, sense check

PaulCooper

Just looking for a check on my understanding of the tax to be paid on interest earned in the 23/24 tax year
I'm a 20% tax payer, pensions amount to approx £20k. On top of this I've around £3200 in interest. My understanding is that £1000 will be taxed at 0% with the remaining £2200 taxed at my 20% rate, does this sound correct?
Second part of question relates to OH, she is a non tax payer, with pensions of approx £12k, her tax code is 1250ish (it's the std single persons allowance) She has interest of £450. I think she'll be taxed at 0% on this?
If she had interest of £1000, I think she would be taxed at 20% on anything over her personal allowance e.g. 20% of £500. Is my understanding correct?
Also, OH doesn't normally file a tax return, does she now have to due to interest?
Many thanks to forum people that reply
Paul 

Dazed_and_C0nfused

I'm a 20% tax payer, pensions amount to approx £20k. On top of this I've around £3200 in interest. My understanding is that £1000 will be taxed at 0% with the remaining £2200 taxed at my 20% rate, does this sound correct?

Yes.  Depending on how much interest you received in 2022-23 and any adjustment made to your 2023-24 tax code you may have already paid some of the tax due on the interest for 2023-24.

No, her interest will be covered by her unused Personal Allowance. Same end result though, no tax owed.

With that small amount of non savings non dividend income she can earn £6,000 in interest after using her Personal Allowance.

£5,000 taxed at 0% (savings starter rate band)
£1,000 taxed at 0% (savings nil rate band).

Basically between the two of you are paying more tax than is strictly necessary but there may be a good (not tax related) reason why you have the savings split like that.  

Based on what you have posted neither of you should need to file a tax return.

Second part of question relates to OH, she is a non tax payer, with pensions of approx £12k, her tax code is 1250ish (it's the std single persons allowance) She has interest of £450. I think she'll be taxed at 0% on this?

If she had interest of £1000, I think she would be taxed at 20% on anything over her personal allowance e.g. 20% of £500. Is my understanding correct?

Also, OH doesn't normally file a tax return, does she now have to due to interest?

eskbanker

PaulCooper said:

Just looking for a check on my understanding of the tax to be paid on interest earned in the 23/24 tax year
I'm a 20% tax payer, pensions amount to approx £20k. On top of this I've around £3200 in interest. My understanding is that £1000 will be taxed at 0% with the remaining £2200 taxed at my 20% rate, does this sound correct?

Yes.

PaulCooper said:

Second part of question relates to OH, she is a non tax payer, with pensions of approx £12k, her tax code is 1250ish (it's the std single persons allowance) She has interest of £450. I think she'll be taxed at 0% on this?
If she had interest of £1000, I think she would be taxed at 20% on anything over her personal allowance e.g. 20% of £500. Is my understanding correct?

No, if her non-savings income is only £12K, she can earn £6,570 of interest before any tax would be due, thanks to the starting savings rate and personal savings allowances:

https://www.moneysavingexpert.com/savings/tax-free-savings/

Given the amount of headroom she has, it may be worth using the marriage allowance to reduce your tax bill:

https://www.gov.uk/marriage-allowance

PaulCooper said:

Also, OH doesn't normally file a tax return, does she now have to due to interest?

No, she only has to self-assess if interest exceeds £10K (or if asked to for any other reason).

PaulCooper

Thanks to both for posting, I realise I made a mistake putting a chunk of savings in my name. I'm rectifying that situation as accounts mature. 
I have always filed a tax return, I used to be a Director and now have a farming business (very small)
I've thought about the transfer of part of OH allowance but I read so many conflicting/confusing things on here about it I've always shied away from doing it
Thanks again
Paul 

eskbanker

PaulCooper said:

I've thought about the transfer of part of OH allowance but I read so many conflicting/confusing things on here about it I've always shied away from doing it

It seems straightforward to me but what's the confusion or conflict?

Dazed_and_C0nfused

eskbanker said:

PaulCooper said:

I've thought about the transfer of part of OH allowance but I read so many conflicting/confusing things on here about it I've always shied away from doing it

It seems straightforward to me but what's the confusion or conflict?

Agree.

If your wife has pension income of £12,000 and no other non savings non dividend income then by applying (she has to apply, you can't claim it) she will give herself a reduced Personal Allowance of £11,310.  And be liable to pay tax of £138.

Her savings interest will all then be taxed but at 0%.  Total tax liability is £138.

You then get £252 knocked off your liability meaning as a couple you are £114 better off.

Obviously if the "approx £12k" was understated the benefit will be less but potentially still worth doing.

As she is making herself pay tax unnecessarily so that you will benefit by a greater amount it might be prudent to give her the amount she needs to cover the tax she will pay 👩‍❤️‍👨

PaulCooper

OK you guys win, I'm going to do the maths a bit more accurately and increase my understanding
Just to clarify, if her personal allowance is reduced to £11310, then she can still benefit from >£6k (interest) that effectively is untaxed.
Oh and there is no chance I'll be paying her back!
Thanks
Paul