Do I need to pay tax on my savings interest?

bdbl

Hi, newbie to the forum here.
Hubby and I took early retirement in late 2022 and the following year downsized our house and put the money into different savings accounts to pay for our future. Our pensions were around £8k each per year and we split the money from the house and put it into 4 accounts (2 each) to help with the £85k in case the banks went bust.
My hubby died recently so now I will receive half of his private pension making my earnings about £12k per year but I now earn around £1k per month interest on the money. I have no idea if I'm classed as a tax payer and whether I need to pay tax on my savings. Can anyone give me any advise please? Thank you

xylophone

Are the savings TAXABLE OR NON TAXABLE?


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

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.

Krakkkers

I am in a similar position but do not do self assessment, the tax due on my interest is taken from my pension income.

Bigwheels1111

This is how it should work for you.

The first £12,570 of earnings, pension or interest is tax free.

£12,000 pension leaves £570 of free interest.

The next £5,000 if interest is called the starter savings rate, as such if its savings interest its not taxed.

Thean ypur personal savins allowance of £1,000 un tax savings interest..

So 12K pension and 12k interest = 24k.

£24,000 - £12,000 earnings - £570 of tac free income - £5,000 starter savings - PSA £1,000 = £5,430 @ 20% tax

£1,086 tax to pay.

As interest is over 10k you will need to set up self assessment.

Quite simple to fill out.

Dazed_and_C0nfused

Krakkkers said:

I am in a similar position but do not do self assessment, the tax due on my interest is taken from my pension income.

Is your (non ISA) interest >£10k though?

And if it is do you expect to be liable to pay any tax on it?

bdbl

Thanks everyone.
Sorry if I'm being thick, but if I were to put some of the money into an ISA would this take my interest below the 10k taxable level? 
Thanks so much 😊

Dazed_and_C0nfused

bdbl said:

Thanks everyone.
Sorry if I'm being thick, but if I were to put some of the money into an ISA would this take my interest below the 10k taxable level? 
Thanks so much 😊

I think you've misunderstood 

All interest outside an ISA (or pension) will be taxable, it's just that it's only when it hits £10k is a tax return required.

Under that you might still pay tax but HMRC will collate the information and send you a calculation each year.

But ISA's can be a good option, especially if you can get a rate which gives a better net return than a taxable account.

For example 5.0% in a taxable account could give a real return of 4.0% after you have paid 20% tax.

So 4.2% in a Cash ISA is going to give you more overall despite the headline rate (5.0%) being less than the ISA (4.2%).

It gets a bit more complicated when you are dealing with interest that might be taxed at 0% or covered by unused Personal Allowances but once you are looking at the bit that is going to be taxed at 20% it's more straightforward.

EthicsGradient

bdbl said:

Thanks everyone.
Sorry if I'm being thick, but if I were to put some of the money into an ISA would this take my interest below the 10k taxable level? 
Thanks so much 😊

Sorry for your loss - sorting out things like this must be trying.

Moving what you can into an ISA is a good idea anyway. What your total taxable income this year will be will depend on when your late husband's pension starts (or had started) paying to you, and the date his 2 savings accounts transfer over into your name - if significantly after April 6th for the latter, perhaps you won't reach the 10k total this tax year (and that also depends on when they pay interest - if either is annual, then perhaps the annual date gets reset when they transfer - this would be worth checking). 

If the accounts pay about 5%, then the 20k per tax year you can put into an ISA is about £1,000 of interest. So that might take you down to 11k taxable interest (for a full year); put another 20k into an ISA next tax year and you may be below the 10k amount.

Self-assessment online isn't that hard; you just put in the total for your pensions, and the total for your savings interest received in the tax year.