Interest and tax question

dogbower

Around 18 months ago I received an inheritance.
For a number of reasons we didn’t to tie the money up long term, so a year ago we put it into Government bonds earning 6.2%. These were bought in my name only, and are the interest paid at the end of the period, in the next week or so.
My wife has since given up work and has no income, I am a basic rate taxpayer.
So my question is, can we use any of my wife’s tax allowance to lower the amount of tax I will have to pay on the interest earned?
The interest is around £18,000, so if I can’t use any of my wife’s allowance, I’ll be taxed on £17,000?
We may well keep a portion of the inheritance in the bonds, only paying 5.15% this time.
If we do does it make sense to transfer the money to my wife and take the bond out in her name?
This will reduce the rate to 5.05% but we could earn her total allowance before paying any tax?
Thanks

Peter999_2

Apparently you can transfer up to £1,260 from her allowance to yours.    It sounds like it would then be a good idea to then transfer it all to her name.   If she doesn't work she will then get the normal allowance and also be able to use the starter tax which adds another £5,000 to her tax allowance for interest.

Marriage tax allowance: how does it work and how to apply - MoneySavingExpert
How the starting rate for savings works - Money Saving Expert

I'm not an expert though so I could be wrong, but that's how I read the above two articles.

ColdIron

dogbower said:

My wife has since given up work and has no income, I am a basic rate taxpayer.
So my question is, can we use any of my wife’s tax allowance to lower the amount of tax I will have to pay on the interest earned?

Going forward yes but as those bonds are in your name the interest is down to you this time

The interest is around £18,000, so if I can’t use any of my wife’s allowance, I’ll be taxed on £17,000?

Probably but she could look at transferring some of her Personal Allowance to you with the Marriage Allowance

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

If we do does it make sense to transfer the money to my wife and take the bond out in her name?
This will reduce the rate to 5.05% but we could earn her total allowance before paying any tax?

Definately, she could earn up to £18,570 in interest before paying tax (ignoring the marriage allowance anyway)

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

Dazed_and_C0nfused

dogbower said:

Around 18 months ago I received an inheritance.
For a number of reasons we didn’t to tie the money up long term, so a year ago we put it into Government bonds earning 6.2%. These were bought in my name only, and are the interest paid at the end of the period, in the next week or so.
My wife has since given up work and has no income, I am a basic rate taxpayer.
So my question is, can we use any of my wife’s tax allowance to lower the amount of tax I will have to pay on the interest earned?
The interest is around £18,000, so if I can’t use any of my wife’s allowance, I’ll be taxed on £17,000?
We may well keep a portion of the inheritance in the bonds, only paying 5.15% this time.
If we do does it make sense to transfer the money to my wife and take the bond out in her name?
This will reduce the rate to 5.05% but we could earn her total allowance before paying any tax?
Thanks

Will you still be a basic rate payer with an additional £18,000 taxable interest?

You will be taxed on the whole £18,000.  But the first £500 or £1,000 will be at a 0% tax rate.

If you are then your wife could apply for Marriage Allowance.  This will reduce her Personal Allowance to £11,310 and although yours will remain the standard £12,570 you will £252 knocked off your tax liability.

Going forward you could give your wife some money so she receives the interest.  Even if she has applied for Marriage Allowance she could have taxable interest of £17,310 before any tax was payable on it.  Just don't forget it's her money to save (or spend) as she wishes.

As your interest exceeded £10,000 you will need to register for Self Assessment and complete a tax return for 2024-25.

dogbower

Dazed_and_C0nfused said:

dogbower said:

Around 18 months ago I received an inheritance.
For a number of reasons we didn’t to tie the money up long term, so a year ago we put it into Government bonds earning 6.2%. These were bought in my name only, and are the interest paid at the end of the period, in the next week or so.
My wife has since given up work and has no income, I am a basic rate taxpayer.
So my question is, can we use any of my wife’s tax allowance to lower the amount of tax I will have to pay on the interest earned?
The interest is around £18,000, so if I can’t use any of my wife’s allowance, I’ll be taxed on £17,000?
We may well keep a portion of the inheritance in the bonds, only paying 5.15% this time.
If we do does it make sense to transfer the money to my wife and take the bond out in her name?
This will reduce the rate to 5.05% but we could earn her total allowance before paying any tax?
Thanks

Will you still be a basic rate payer with an additional £18,000 taxable interest?

Good point, no I’ll be over the threshold with the interest. I understand if I make pension contributions this can put me back under this?

Dazed_and_C0nfused

dogbower said:

Dazed_and_C0nfused said:

dogbower said:

Around 18 months ago I received an inheritance.
For a number of reasons we didn’t to tie the money up long term, so a year ago we put it into Government bonds earning 6.2%. These were bought in my name only, and are the interest paid at the end of the period, in the next week or so.
My wife has since given up work and has no income, I am a basic rate taxpayer.
So my question is, can we use any of my wife’s tax allowance to lower the amount of tax I will have to pay on the interest earned?
The interest is around £18,000, so if I can’t use any of my wife’s allowance, I’ll be taxed on £17,000?
We may well keep a portion of the inheritance in the bonds, only paying 5.15% this time.
If we do does it make sense to transfer the money to my wife and take the bond out in her name?
This will reduce the rate to 5.05% but we could earn her total allowance before paying any tax?
Thanks

Will you still be a basic rate payer with an additional £18,000 taxable interest?

Good point, no I’ll be over the threshold with the interest. I understand if I make pension contributions this can put me back under this?

Yes.  The methods used to get money into the pension work in slightly different ways but the end result is that extra pension contributions can mean you could remain a basic rate payer.

If you were a higher rate payer you couldn't benefit from Marriage Allowance in that tax year.

dogbower

Dazed_and_C0nfused said:

dogbower said:

Dazed_and_C0nfused said:

dogbower said:

Around 18 months ago I received an inheritance.
For a number of reasons we didn’t to tie the money up long term, so a year ago we put it into Government bonds earning 6.2%. These were bought in my name only, and are the interest paid at the end of the period, in the next week or so.
My wife has since given up work and has no income, I am a basic rate taxpayer.
So my question is, can we use any of my wife’s tax allowance to lower the amount of tax I will have to pay on the interest earned?
The interest is around £18,000, so if I can’t use any of my wife’s allowance, I’ll be taxed on £17,000?
We may well keep a portion of the inheritance in the bonds, only paying 5.15% this time.
If we do does it make sense to transfer the money to my wife and take the bond out in her name?
This will reduce the rate to 5.05% but we could earn her total allowance before paying any tax?
Thanks

Will you still be a basic rate payer with an additional £18,000 taxable interest?

Good point, no I’ll be over the threshold with the interest. I understand if I make pension contributions this can put me back under this?

Yes.  The methods used to get money into the pension work in slightly different ways but the end result is that extra pension contributions can mean you could remain a basic rate payer.

If you were a higher rate payer you couldn't benefit from Marriage Allowance in that tax year.

But I can only pay into my pension up to my wage limit to get tax relief, not my wage plus the interest(assuming it’s below 60K)?

Dazed_and_C0nfused

dogbower said:

Dazed_and_C0nfused said:

dogbower said:

Dazed_and_C0nfused said:

dogbower said:

Around 18 months ago I received an inheritance.
For a number of reasons we didn’t to tie the money up long term, so a year ago we put it into Government bonds earning 6.2%. These were bought in my name only, and are the interest paid at the end of the period, in the next week or so.
My wife has since given up work and has no income, I am a basic rate taxpayer.
So my question is, can we use any of my wife’s tax allowance to lower the amount of tax I will have to pay on the interest earned?
The interest is around £18,000, so if I can’t use any of my wife’s allowance, I’ll be taxed on £17,000?
We may well keep a portion of the inheritance in the bonds, only paying 5.15% this time.
If we do does it make sense to transfer the money to my wife and take the bond out in her name?
This will reduce the rate to 5.05% but we could earn her total allowance before paying any tax?
Thanks

Will you still be a basic rate payer with an additional £18,000 taxable interest?

Good point, no I’ll be over the threshold with the interest. I understand if I make pension contributions this can put me back under this?

Yes.  The methods used to get money into the pension work in slightly different ways but the end result is that extra pension contributions can mean you could remain a basic rate payer.

If you were a higher rate payer you couldn't benefit from Marriage Allowance in that tax year.

But I can only pay into my pension up to my wage limit to get tax relief, not my wage plus the interest(assuming it’s below 60K)?

Yes.  But unless I'm missing something that won't be an issue in as far as retaining basic rate status.

For example say you have taxable earnings of £40k and interest of £18k as your only taxable income.  Assuming you aren't Scottish resident you would only need to contribute ~£8k to remain a basic rate payer.

dogbower

Dazed_and_C0nfused said:

dogbower said:

Dazed_and_C0nfused said:

dogbower said:

Dazed_and_C0nfused said:

dogbower said:

Around 18 months ago I received an inheritance.
For a number of reasons we didn’t to tie the money up long term, so a year ago we put it into Government bonds earning 6.2%. These were bought in my name only, and are the interest paid at the end of the period, in the next week or so.
My wife has since given up work and has no income, I am a basic rate taxpayer.
So my question is, can we use any of my wife’s tax allowance to lower the amount of tax I will have to pay on the interest earned?
The interest is around £18,000, so if I can’t use any of my wife’s allowance, I’ll be taxed on £17,000?
We may well keep a portion of the inheritance in the bonds, only paying 5.15% this time.
If we do does it make sense to transfer the money to my wife and take the bond out in her name?
This will reduce the rate to 5.05% but we could earn her total allowance before paying any tax?
Thanks

Will you still be a basic rate payer with an additional £18,000 taxable interest?

Good point, no I’ll be over the threshold with the interest. I understand if I make pension contributions this can put me back under this?

Yes.  The methods used to get money into the pension work in slightly different ways but the end result is that extra pension contributions can mean you could remain a basic rate payer.

If you were a higher rate payer you couldn't benefit from Marriage Allowance in that tax year.

But I can only pay into my pension up to my wage limit to get tax relief, not my wage plus the interest(assuming it’s below 60K)?

Yes.  But unless I'm missing something that won't be an issue in as far as retaining basic rate status.

For example say you have taxable earnings of £40k and interest of £18k as your only taxable income.  Assuming you aren't Scottish resident you would only need to contribute ~£8k to remain a basic rate payer.

Thanks again.
i was thinking more, if I was earning £40K and interest of 18K, can I contribute to my pension based on £58K income?

Dazed_and_C0nfused

dogbower said:

Dazed_and_C0nfused said:

dogbower said:

Dazed_and_C0nfused said:

dogbower said:

Dazed_and_C0nfused said:

dogbower said:

Around 18 months ago I received an inheritance.
For a number of reasons we didn’t to tie the money up long term, so a year ago we put it into Government bonds earning 6.2%. These were bought in my name only, and are the interest paid at the end of the period, in the next week or so.
My wife has since given up work and has no income, I am a basic rate taxpayer.
So my question is, can we use any of my wife’s tax allowance to lower the amount of tax I will have to pay on the interest earned?
The interest is around £18,000, so if I can’t use any of my wife’s allowance, I’ll be taxed on £17,000?
We may well keep a portion of the inheritance in the bonds, only paying 5.15% this time.
If we do does it make sense to transfer the money to my wife and take the bond out in her name?
This will reduce the rate to 5.05% but we could earn her total allowance before paying any tax?
Thanks

Will you still be a basic rate payer with an additional £18,000 taxable interest?

Good point, no I’ll be over the threshold with the interest. I understand if I make pension contributions this can put me back under this?

Yes.  The methods used to get money into the pension work in slightly different ways but the end result is that extra pension contributions can mean you could remain a basic rate payer.

If you were a higher rate payer you couldn't benefit from Marriage Allowance in that tax year.

But I can only pay into my pension up to my wage limit to get tax relief, not my wage plus the interest(assuming it’s below 60K)?

Yes.  But unless I'm missing something that won't be an issue in as far as retaining basic rate status.

For example say you have taxable earnings of £40k and interest of £18k as your only taxable income.  Assuming you aren't Scottish resident you would only need to contribute ~£8k to remain a basic rate payer.

Thanks again.
i was thinking more, if I was earning £40K and interest of 18K, can I contribute to my pension based on £58K income?

For tax relief purposes you will be limited by your income for pension contribution purposes.

In that example it would be just £40k, not £58k, as interest isn't relevant for pension contribution purposes.

Don't forget you only get higher rate relief on the amount you would be liable to higher rate tax on, being a higher rate payer to start with doesn't mean you get higher rate relief on 100% of the contribution.