Tax on interest

tangooscar33

I have earned more than £1000 on bank interest in the last tax year.  I also had some income from a unit trust, well below the personal allowance.  All other income is from tax free sources.  Do I need to pay tax on the interest over £1000?  Can anyone answer this?  I have seen conflicting advice online, so would like a definitive answer, if possible, please. Thanks

kempiejon

If your taxable earned income is below £17k probably not. Run your own numbers as per HMRC

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

Mark_d

Whether you need to pay tax depends on how much you earn in interest, dividends etc. as well as how much you earn from employment (or receive from pension payout).  This will help you:

https://www.gov.uk/check-if-you-need-tax-return

InvesterJones

Hard to be definitive without knowing firmer details (and ultimately this will just be another online opinion, this is not the official definitive source of tax decisions ) You're probably fine if the 'well below' covers the amount of interest over £1000.

wmb194

tangooscar33 said:

I have earned more than £1000 on bank interest in the last tax year.  I also had some income from a unit trust, well below the personal allowance.  All other income is from tax free sources.  Do I need to pay tax on the interest over £1000?  Can anyone answer this?  I have seen conflicting advice online, so would like a definitive answer, if possible, please. Thanks

What was the income from the unit trust classified as? Dividend or interest?

whattochoose

I'm retired but have worked at elections (local and national) as a poll clerk the last few years.
I've found myself in the happy position of being in receipt of much higher interest from my savings as a result of improved rates being offered by banks, due to the rise in interest rates. 
However, even though I'm able to derive some benefit from the "tax free interest from savings" rule, because my overall income is less than £17570, what it does mean is that if I do the poll clerk work, I'll effectively be paying two lots of income tax, (1) on the actual income I'll earn and (2) that income will then be included as part of my overall income and be used when calculating how much extra tax I'll need to pay on the interest from savings that I earn.
So it means this year I wont be working as a poll clerk, because I feel effectively paying two lots of tax takes away my enthusiasm to do the job.
I'm not moaning about this, because I'm happy to be receiving higher rates of interest on my savings.
I suppose I'm just sharing.

JGB1955

whattochoose said:

I'm retired but have worked at elections (local and national) as a poll clerk the last few years.
I've found myself in the happy position of being in receipt of much higher interest from my savings as a result of improved rates being offered by banks, due to the rise in interest rates. 
However, even though I'm able to derive some benefit from the "tax free interest from savings" rule, because my overall income is less than £17570, what it does mean is that if I do the poll clerk work, I'll effectively be paying two lots of income tax, (1) on the actual income I'll earn and (2) that income will then be included as part of my overall income and be used when calculating how much extra tax I'll need to pay on the interest from savings that I earn.
So it means this year I wont be working as a poll clerk, because I feel effectively paying two lots of tax takes away my enthusiasm to do the job.
I'm not moaning about this, because I'm happy to be receiving higher rates of interest on my savings.
I suppose I'm just sharing.

You would still be netting 80% of any income over £18,570.

Dazed_and_C0nfused

JGB1955 said:

whattochoose said:

I'm retired but have worked at elections (local and national) as a poll clerk the last few years.
I've found myself in the happy position of being in receipt of much higher interest from my savings as a result of improved rates being offered by banks, due to the rise in interest rates. 
However, even though I'm able to derive some benefit from the "tax free interest from savings" rule, because my overall income is less than £17570, what it does mean is that if I do the poll clerk work, I'll effectively be paying two lots of income tax, (1) on the actual income I'll earn and (2) that income will then be included as part of my overall income and be used when calculating how much extra tax I'll need to pay on the interest from savings that I earn.
So it means this year I wont be working as a poll clerk, because I feel effectively paying two lots of tax takes away my enthusiasm to do the job.
I'm not moaning about this, because I'm happy to be receiving higher rates of interest on my savings.
I suppose I'm just sharing.

You would still be netting 80% of any income over £18,570.

I think this a tricky one to get your head round, and I spectacularly failed at that a year or two back, but it can be an effective rate of 40%.

For example,

Earnings/pension of £12,570

Less PA £12,570 = £0 to be taxed.
Tax due on earnings/pension £0.00

Interest £6,000
£5,000 taxed at 0% (savings starter rate)
£1,000 taxed at 0% (savings nil rate)
Tax due on interest £0.00

Total tax bill £0

Same person does some election work and earns an extra £1,000 (as an employee).

Earnings/pension now £13,570
less PA £12,570 = £1,000 to be taxed
£1,000 x 20% (basic rate) = £200
Tax due on earnings £200

Interest £6,000
£4,000 taxed at 0% (savings starter rate)

£1,000 taxed at 0% (savings nil rate)
£1,000 taxed at 20% (savings basic rate)

Tax due on interest £200

Total tax bill £400

The extra £1,000 earnings has an effective tax rate of 40%

JGB1955

Dazed_and_C0nfused said:

JGB1955 said:

whattochoose said:

I'm retired but have worked at elections (local and national) as a poll clerk the last few years.
I've found myself in the happy position of being in receipt of much higher interest from my savings as a result of improved rates being offered by banks, due to the rise in interest rates. 
However, even though I'm able to derive some benefit from the "tax free interest from savings" rule, because my overall income is less than £17570, what it does mean is that if I do the poll clerk work, I'll effectively be paying two lots of income tax, (1) on the actual income I'll earn and (2) that income will then be included as part of my overall income and be used when calculating how much extra tax I'll need to pay on the interest from savings that I earn.
So it means this year I wont be working as a poll clerk, because I feel effectively paying two lots of tax takes away my enthusiasm to do the job.
I'm not moaning about this, because I'm happy to be receiving higher rates of interest on my savings.
I suppose I'm just sharing.

You would still be netting 80% of any income over £18,570.

I think this a tricky one to get your head round, and I spectacularly failed at that a year or two back, but it can be an effective rate of 40%.

For example,

Earnings/pension of £12,570

Less PA £12,570 = £0 to be taxed.
Tax due on earnings/pension £0.00

Interest £6,000
£5,000 taxed at 0% (savings starter rate)
£1,000 taxed at 0% (savings nil rate)
Tax due on interest £0.00

Total tax bill £0

Same person does some election work and earns an extra £1,000 (as an employee).

Earnings/pension now £13,570
less PA £12,570 = £1,000 to be taxed
£1,000 x 20% (basic rate) = £200
Tax due on earnings £200

Interest £6,000
£4,000 taxed at 0% (savings starter rate)

£1,000 taxed at 0% (savings nil rate)
£1,000 taxed at 20% (savings basic rate)

Tax due on interest £200

Total tax bill £400

The extra £1,000 earnings has an effective tax rate of 40%

Thanks - every day is a learning day!

horsewithnoname

Dazed_and_C0nfused said:

JGB1955 said:

whattochoose said:

I'm retired but have worked at elections (local and national) as a poll clerk the last few years.
I've found myself in the happy position of being in receipt of much higher interest from my savings as a result of improved rates being offered by banks, due to the rise in interest rates. 
However, even though I'm able to derive some benefit from the "tax free interest from savings" rule, because my overall income is less than £17570, what it does mean is that if I do the poll clerk work, I'll effectively be paying two lots of income tax, (1) on the actual income I'll earn and (2) that income will then be included as part of my overall income and be used when calculating how much extra tax I'll need to pay on the interest from savings that I earn.
So it means this year I wont be working as a poll clerk, because I feel effectively paying two lots of tax takes away my enthusiasm to do the job.
I'm not moaning about this, because I'm happy to be receiving higher rates of interest on my savings.
I suppose I'm just sharing.

You would still be netting 80% of any income over £18,570.

I think this a tricky one to get your head round, and I spectacularly failed at that a year or two back, but it can be an effective rate of 40%.

For example,

Earnings/pension of £12,570

Less PA £12,570 = £0 to be taxed.
Tax due on earnings/pension £0.00

Interest £6,000
£5,000 taxed at 0% (savings starter rate)
£1,000 taxed at 0% (savings nil rate)
Tax due on interest £0.00

Total tax bill £0

Same person does some election work and earns an extra £1,000 (as an employee).

Earnings/pension now £13,570
less PA £12,570 = £1,000 to be taxed
£1,000 x 20% (basic rate) = £200
Tax due on earnings £200

Interest £6,000
£4,000 taxed at 0% (savings starter rate)

£1,000 taxed at 0% (savings nil rate)
£1,000 taxed at 20% (savings basic rate)

Tax due on interest £200

Total tax bill £400

The extra £1,000 earnings has an effective tax rate of 40%

That’s nonsense. In your example you have paid 20% on the earned income above the personal allowance and 20 % on the interest above the £1000 savings allowance. That does not mean 40% tax

eskbanker

horsewithnoname said:

Dazed_and_C0nfused said:

JGB1955 said:

whattochoose said:

I'm retired but have worked at elections (local and national) as a poll clerk the last few years.
I've found myself in the happy position of being in receipt of much higher interest from my savings as a result of improved rates being offered by banks, due to the rise in interest rates. 
However, even though I'm able to derive some benefit from the "tax free interest from savings" rule, because my overall income is less than £17570, what it does mean is that if I do the poll clerk work, I'll effectively be paying two lots of income tax, (1) on the actual income I'll earn and (2) that income will then be included as part of my overall income and be used when calculating how much extra tax I'll need to pay on the interest from savings that I earn.
So it means this year I wont be working as a poll clerk, because I feel effectively paying two lots of tax takes away my enthusiasm to do the job.
I'm not moaning about this, because I'm happy to be receiving higher rates of interest on my savings.
I suppose I'm just sharing.

You would still be netting 80% of any income over £18,570.

I think this a tricky one to get your head round, and I spectacularly failed at that a year or two back, but it can be an effective rate of 40%.

For example,

Earnings/pension of £12,570

Less PA £12,570 = £0 to be taxed.
Tax due on earnings/pension £0.00

Interest £6,000
£5,000 taxed at 0% (savings starter rate)
£1,000 taxed at 0% (savings nil rate)
Tax due on interest £0.00

Total tax bill £0

Same person does some election work and earns an extra £1,000 (as an employee).

Earnings/pension now £13,570
less PA £12,570 = £1,000 to be taxed
£1,000 x 20% (basic rate) = £200
Tax due on earnings £200

Interest £6,000
£4,000 taxed at 0% (savings starter rate)

£1,000 taxed at 0% (savings nil rate)
£1,000 taxed at 20% (savings basic rate)

Tax due on interest £200

Total tax bill £400

The extra £1,000 earnings has an effective tax rate of 40%

That’s nonsense. In your example you have paid 20% on the earned income above the personal allowance and 20 % on the interest above the £1000 savings allowance. That does not mean 40% tax

Total income increases by £1000.

Total tax payable increases by £400.

Ergo the effective tax rate on that additional income is 40%.  The fact that it's actually two separate chunks of taxation is adequately covered already in the explanation....