Interest on Savings and paying / declaring tax?

John1125

Any advice appreciated.
Myself and partner are in our fifties and still working full-time.  I earn £52,000 so I think I'm just in the 40% tax bracket for small proportion of my earnings. My partner earns £45,000 so is in the 20% tax bracket for all their earnings.  We both work for big organisations so tax is taken out automatically on pay etc. No other income/earnings etc. 
We came into a small inheritance last year from family; paid off remainder of mortgage and have £60K in building society - have it available while 2 children going through Uni but, to date, have been able to help them without dipping into savings (from money we've saved from not paying the mortgage each month).
Our building society pays 3.25% interest so we'll probably get around  £2,000 gross in interest at end of year (paid annually). We dont' have any other savings and no other debts/loans etc.
Will we have to pay any additional tax on the interest (£2K)? Is there a better way we should be saving the money (bearing in mind we don't want to lock it away for long period as may want to use it for uni/ deposit for children's first houses etc). 
If so do we have to both complete a self-assessment? I'm not sure if HMRC will advise us if they are advised of interest payments by building societies etc? 
Thanks in advance

Bigwheels1111

Why have you not put 20k each into an ISA.

No self assessment needed. When the interest is reported you will have your tax code altered and tax is paid that way.

At least get the best rates you can. 3.25% is a kick in the teeth.

My Chip ISA pays 4.86% instant access and deposits via open banking.

New people get more.

https://www.getchip.uk/savings-accounts/cash-isa

https://moneyfactscompare.co.uk/

At the top click savings, ie fixed etc.

Then how long and then rate order.

Dazed_and_C0nfused

John1125 said:

Any advice appreciated.
Myself and partner are in our fifties and still working full-time.  I earn £52,000 so I think I'm just in the 40% tax bracket for small proportion of my earnings. My partner earns £45,000 so is in the 20% tax bracket for all their earnings.  We both work for big organisations so tax is taken out automatically on pay etc. No other income/earnings etc. 
We came into a small inheritance last year from family; paid off remainder of mortgage and have £60K in building society - have it available while 2 children going through Uni but, to date, have been able to help them without dipping into savings (from money we've saved from not paying the mortgage each month).
Our building society pays 3.25% interest so we'll probably get around  £2,000 gross in interest at end of year (paid annually). We dont' have any other savings and no other debts/loans etc.
Will we have to pay any additional tax on the interest (£2K)? Is there a better way we should be saving the money (bearing in mind we don't want to lock it away for long period as may want to use it for uni/ deposit for children's first houses etc). 
If so do we have to both complete a self-assessment? I'm not sure if HMRC will advise us if they are advised of interest payments by building societies etc? 
Thanks in advance

Assuming you aren't referring an ISA then yes, all of the interest will be taxed.

The first £1,000 of your wife's (50%) share will be taxed at 0%.  Any little bit above that would be at 20%.

The first £500 of your share will also be taxed at 0%, the remainder at 40%.

Assuming no other criteria applies then Self Assessment is only expected by HMRC if your interest is £10,000 or more in any tax year.  Same for your wife.

Don't forget your earnings/salary aren't necessarily relevant for tax purposes, it's your taxable pay that counts (the amount that will be on your P60) and that is often less than your earnings/salary due to pension contributions.  So you could actually be in the same position as your wife.

If either of you do owe tax for the current (2024-25) tax year then you can expect HMRC to notify you this time next year (during the 2025-26 tax year) with the tax being collected by an adjustment to your 2026-27 tax code.  You can of course pay the tax direct to HMRC if you prefer (after getting the calculation from them).

surreysaver

When you say you're on £52k, is that before or after you've paid into occupational pension? If your pension is taken out of that £52k, your taxable pay will be less than that, and you therefore won't be paying 40% tax 

Aretnap

surreysaver said:

When you say you're on £52k, is that before or after you've paid into occupational pension? If your pension is taken out of that £52k, your taxable pay will be less than that, and you therefore won't be paying 40% tax 

Though if you also get taxable benefits (such as private health insurance) they would move the calculation in the other direction. 

In any event making sure that you are making sufficient pension contributions too keep yourself out of the 40% tax bracket (and including your interest in that calculation) feels like a no-brainer in the circumstances.

Albermarle

If you put £20K each into a cash ISA, then only the interest on the remaining £20K would be potentially liable for some tax.
You can have instant access Cash ISA's ( best ones paying up to 5% but not fixed ) or you could have a fixed term cash ISA, for one or two years ( best paying 4.5% to 4.8%) Or have a mix.