£17,570 Tax Free Interest on Savings for a non-working, non-income wife?

dodmwe

I am just about to take the maximum £268,275 from my pension tax free. I pay tax at a higher rate, so I'm going to transfer it all into my wife's name as she doesn't have any income, therefore pays no tax.

She will put it in a savings account for now. At interest rates of ~5%, plus some additional savings, the savings interest is going to near £17.5k pa.

I know the additional savings rate is £5k per year, but is that on top of the £12,570 income, if all that £12,570 income is savings interest? Or does the £12,570 have to be another source of income (employment etc.), and not savings to get the benefit of the additional £5k interest free savings rate?

I did search around but could find the answer. Thanks in advance.

friolento

It's actually £18,570. https://www.moneysavingexpert.com/savings/tax-free-savings/

Bigwheels1111

As above £18,570 as such tax free.
When she gets over 10k of interest a self assessment return is required.
Just registering is harder than filing the return.

Dazed_and_C0nfused

dodmwe said:

I am just about to take the maximum £268,275 from my pension tax free. I pay tax at a higher rate, so I'm going to transfer it all into my wife's name as she doesn't have any income, therefore pays no tax.

She will put it in a savings account for now. At interest rates of ~5%, plus some additional savings, the savings interest is going to near £17.5k pa.

I know the additional savings rate is £5k per year, but is that on top of the £12,570 income, if all that £12,570 income is savings interest? Or does the £12,570 have to be another source of income (employment etc.), and not savings to get the benefit of the additional £5k interest free savings rate?

I did search around but could find the answer. Thanks in advance.

To be able to benefit from the savings starter rate band she must have non savings non dividend income (taxable earnings, pension, rental income or self employment profits being the most common types) less than £17,570.

If her non savings non dividend income is £0 then she has the full Personal Allowance to use before the full savings starter rate band can be used.

And the full savings starter rate band has to be used before the savings nil rate band (aka Personal Savings Allowance) can be used.

ISA's generate tax free/exempt interest, normal non ISA accounts generate taxable interest.  But if she has absolutely no other taxable income she can earn £18,570 (£12,570 + £5,000 + £1,000) before tax is payable on it.  The final £6,000 would be taxed but at a 0% tax rate.

Your biggest risk isn't tax, it's the fact that the money earning that interest is no longer yours, it's your wife's and she can spend it as she sees fit.

artyboy

...well that, plus it's also then inside your estate (or rather your wife's estate) and therefore becomes liable for IHT, which it wouldn't (currently) if it remained within the pension wrapper.

It appears the only reason it's being withdrawn is to park it in your wife's name to generate tax free interest on cash savings? Rather than to be used for a specific purchase or pay down of mortgage or other debt?

If there is a need for that 17.5k in income then it would seem to me that the OP could achieve this by parking the TFLS in a money market fund within the pension and just withdraw 17.5k of it per year (at least for the next 15 years until they hit the limit...)

jaypers

Sure you’ve looked at this, but……..
Max out both of your ISA allowances for the year.
Make sure you don’t have more than £85k in any single institution each, and watch out of subsidiaries, eg: Cahoot is owned by Santander etc.
With that sort of sum, I would seriously consider having a portion of it in investments as unless you intend to spend it, that’s far too much cash to sit on. 

boingy

It might be too late but I'd suggest drawing the tax free amount in annual 40K chunks over the next 6 or 7 years and putting it in an ISA for you and an ISA for your wife. Unless you are paying crazy pension charges you might as well leave the rest in there until you need it or until you have space in an ISA.

where_are_we

You do not mention your wife`s age, but she could put £2880 net (£3600 gross) annually into a personal pension eg a SIPP.

"you can usually access your pension from age 55, this is set to change to 57 on 6 April 2028."

Keep it in cash and calculate each tax year how much to withdraw tax free remembering that each annual withdrawal will count as income.

Full details can be found on the pensions forum.

JamesRobinson48

Remember too that investments in equity funds or shares held outside an ISA benefit from a 0% tax rate on up to £500 dividends annually, and on up to £3000 realised capital gains annually. [Edit: might change in next Budget]. All in addition to the tax breaks mentioned above.

Also, it would be wise for Wife to ensure that she is on track for a full state pension. If she is not, consider making voluntary NI contributions to plug any gap.

otherwayup

I can't believe I am only just finding out about this 'Starting Rate for Savings 5k allowance' - !!!!!!
I thought I was quite savvy with 'our' money, but there's always something that I could have done just a little bit better.

Albermarle

Reading these forums has saved me ( and many others) money/tax/ making mistakes, especially the Savings & Investments and Pensions forums, as well as this one. So worth a regular look.