Taking 25% taxfree cash lumpsum out of large DC pension pot

Dazed_and_C0nfused

MallyGirl said:

BlisteringBarnacles said:

Question : regarding money market, is the interest treated exactly as bank interest in terms of starting rate of savings of £5000, personal savings allowance of £1000 for basic rate taxpayers etc ? I am unemployed this year and the way things are going I'm not sure of employment :-) I worked 25 years in one company and never had to do a CV. The last CV I wrote was before dotcom crash LOL ! I am not even sure what to write now in a CV :-)

Thanks

The growth in a money market fund is not interest - it is income. Personal savings allowances etc do not come into play.
The value will be trying to match bank interest rates but as an income instead.

Are you sure about that?

I thought MM funds generally came in either accumulation or income versions and the income version pays interest??

BlisteringBarnacles

Dazed_and_C0nfused said:

Are you sure about that?

I thought MM funds generally came in either accumulation or income versions and the income version pays interest??

I thought so too, Dazed.

So if I hold a distributing money market fund in taxable (instead of FSCS protected bank account), I thought I would pay the same tax on the distribution as if it was bank interest and also get the benefit of "starting rate of savings" of £5000 / Basic (or higher) rate personal savings allowance of £500( or £1000) that I can avail of for normal bank savings accounts as applicable in my case ?

reddit and monevator seem to think so (below) :

https://www.reddit.com/r/UKPersonalFinance/comments/18gf4vp/how_are_money_market_funds_in_a_gia_taxed/
https://monevator.com/money-market-funds/#:~:text=Money market funds will often,and shares ISA, or pension

So far in my life this has not been an issue since (a) my income always put me in 40% tax band (b) My bank interest was more than £500 and (c) I did not hold Money market funds in Taxable account.

But these days (a) I am unemployed, (b) I am sort of preferring money market funds (Vanguard, Blackrock cash D) to shopping around banks for better interest for my emergency funds. And (c) interest rates are higher than normal, so I may end up with few thousands in bank interest (or money market funds dividends). is there a preference from tax standpoint ?

As an example, suppose my dividends from OEIC Unit trusts comes to almost 12,000. Lets say I also get bank interest of 4000 with a proper bank. In this example I would owe no tax at all since my income is below personal allowance and I get to mop up the starting rate of savings of a full 5000. However if the 4000 was distributions from a money market fund instead and treated as ordinary income then I would owe basic rate tax since my total income of 16,000 above personal allowance ?

Thanks

RogerPensionGuy

https://monevator.com/money-market-funds/#:~:text=Money market funds will often,and shares ISA, or pension.

***

My experience is filling out my 2023/2024 online self assessment. 

I got my yearly statements from my banks, NS&I and GIA accounts, I'm 99% sure all money market funds income or growth was called interest.

I added all the interest payments up and my self assessment was already pre~populated with that data, I was plesenty surprised just how accurate the HMRC data was.

Because my/the unpaid tax bill was less than 3K it gave a choice to pay it or as I have a pension it can be collected via a tax code change and that payroll.

I elected via tax code/payroll as I will continue to get interest on that cash, altho other friends and family like to pay off tax bills immediately for some reason.

I hope the link at the top is of interest for some. 

Cheers Roger. 

Dazed_and_C0nfused

RogerPensionGuy said:

https://monevator.com/money-market-funds/#:~:text=Money market funds will often,and shares ISA, or pension.

***

My experience is filling out my 2023/2024 online self assessment. 

I got my yearly statements from my banks, NS&I and GIA accounts, I'm 99% sure all money market funds income or growth was called interest.

I added all the interest payments up and my self assessment was already pre~populated with that data, I was plesenty surprised just how accurate the HMRC data was.

Because my/the unpaid tax bill was less than 3K it gave a choice to pay it or as I have a pension it can be collected via a tax code change and that payroll.

I elected via tax code/payroll as I will continue to get interest on that cash, altho other friends and family like to pay off tax bills immediately for some reason.

I hope the link at the top is of interest for some. 

Cheers Roger. 

 I think that must be new, haven't heard of pre-population of interest details before.

And some people simply prefer not to have their tax code messed with for things like tax underpaid.  Not very MSE but it suits some people!

RogerPensionGuy

Dazed_and_C0nfused said:

RogerPensionGuy said:

https://monevator.com/money-market-funds/#:~:text=Money market funds will often,and shares ISA, or pension.

***

My experience is filling out my 2023/2024 online self assessment. 

I got my yearly statements from my banks, NS&I and GIA accounts, I'm 99% sure all money market funds income or growth was called interest.

I added all the interest payments up and my self assessment was already pre~populated with that data, I was plesenty surprised just how accurate the HMRC data was.

Because my/the unpaid tax bill was less than 3K it gave a choice to pay it or as I have a pension it can be collected via a tax code change and that payroll.

I elected via tax code/payroll as I will continue to get interest on that cash, altho other friends and family like to pay off tax bills immediately for some reason.

I hope the link at the top is of interest for some. 

Cheers Roger. 

 I think that must be new, haven't heard of pre-population of interest details before.

And some people simply prefer not to have their tax code messed with for things like tax underpaid.  Not very MSE but it suits some people!

Reference pre~population, the HMRC work out unpaid tax on interest and as I understand, if that total is less than 10K interest, a person does nothing and it's all automatically sorted out. 

Mine was over that 10K limit and I was aware that I should fill out self assessment, so I did.

I wonder why they set that 10K figure, it just generates more paperwork. 

I can see why they may need data or self assessment if a person isn't on a payroll whereby collection is required via other ways, but if payroll and tax code can collect unpaid interest tax, why not just do that?

Dazed_and_C0nfused

RogerPensionGuy said:

Dazed_and_C0nfused said:

RogerPensionGuy said:

https://monevator.com/money-market-funds/#:~:text=Money market funds will often,and shares ISA, or pension.

***

My experience is filling out my 2023/2024 online self assessment. 

I got my yearly statements from my banks, NS&I and GIA accounts, I'm 99% sure all money market funds income or growth was called interest.

I added all the interest payments up and my self assessment was already pre~populated with that data, I was plesenty surprised just how accurate the HMRC data was.

Because my/the unpaid tax bill was less than 3K it gave a choice to pay it or as I have a pension it can be collected via a tax code change and that payroll.

I elected via tax code/payroll as I will continue to get interest on that cash, altho other friends and family like to pay off tax bills immediately for some reason.

I hope the link at the top is of interest for some. 

Cheers Roger. 

 I think that must be new, haven't heard of pre-population of interest details before.

And some people simply prefer not to have their tax code messed with for things like tax underpaid.  Not very MSE but it suits some people!

Reference pre~population, the HMRC work out unpaid tax on interest and as I understand, if that total is less than 10K interest, a person does nothing and it's all automatically sorted out. 

Mine was over that 10K limit and I was aware that I should fill out self assessment, so I did.

I wonder why they set that 10K figure, it just generates more paperwork. 

I can see why they may need data or self assessment if a person isn't on a payroll whereby collection is required via other ways, but if payroll and tax code can collect unpaid interest tax, why not just do that?

No idea about why the £10k figure is used but was the interest pre-populated or not 🤔

You originally said this,

I added all the interest payments up and my self assessment was already pre~populated with that data

cloud_dog

Dazed_and_C0nfused said:

MallyGirl said:

BlisteringBarnacles said:

Question : regarding money market, is the interest treated exactly as bank interest in terms of starting rate of savings of £5000, personal savings allowance of £1000 for basic rate taxpayers etc ? I am unemployed this year and the way things are going I'm not sure of employment :-) I worked 25 years in one company and never had to do a CV. The last CV I wrote was before dotcom crash LOL ! I am not even sure what to write now in a CV :-)

Thanks

The growth in a money market fund is not interest - it is income. Personal savings allowances etc do not come into play.
The value will be trying to match bank interest rates but as an income instead.

Are you sure about that?

I thought MM funds generally came in either accumulation or income versions and the income version pays interest??

I thought the only (identified) STMMF that evades the income production (tax) consideration was CSH2 due to the way it manages the investment, I think using 'swaps'(???).  There was another tread on here (or the 'Savings & Investment' board where some knowledgeable poster had done all the leg work.

MallyGirl

Dazed_and_C0nfused said:

MallyGirl said:

BlisteringBarnacles said:

Question : regarding money market, is the interest treated exactly as bank interest in terms of starting rate of savings of £5000, personal savings allowance of £1000 for basic rate taxpayers etc ? I am unemployed this year and the way things are going I'm not sure of employment :-) I worked 25 years in one company and never had to do a CV. The last CV I wrote was before dotcom crash LOL ! I am not even sure what to write now in a CV :-)

Thanks

The growth in a money market fund is not interest - it is income. Personal savings allowances etc do not come into play.
The value will be trying to match bank interest rates but as an income instead.

Are you sure about that?

I thought MM funds generally came in either accumulation or income versions and the income version pays interest??

No I am not sure - I said that based on the description of the fund.

Sarahspangles

Dazed_and_C0nfused said:

I think that must be new, haven't heard of pre-population of interest details before.

And some people simply prefer not to have their tax code messed with for things like tax underpaid.  Not very MSE but it suits some people!

HMRC have been pre-populating interest details for Self Assessment and Simple Assessment for a while. Though I don’t think I’d want to rely on this.

I agree I’d rather not have my notice of coding messed with! Right now as someone on PAYE I’m owed tax from 2023-24 as I’m waiting on my P800 and my notice of coding for 2024-25 has been updated in real time for interest received this tax year to date and assumes this is additional to, not instead of the interest received last year. So I’m overpaying tax this year as well.

BlisteringBarnacles

@RogerPensionGuy : How do we find out for sure - that "dividend income" from UK money market funds are treated exactly like bank interest with the personal savings allowance and all that ?

In the same context, Any thoughts on US Money market fund - https://investor.vanguard.com/investment-products/mutual-funds/profile/vmfxx ? I have funds in the US. As non resident alien, I cant shop around between banks, I have only one bank there. Their savings rate is poor. But then what they give is proper bank interest. Its a bank after all. I moved the funds to Vanguard US Federal Money market fund to get 5% return.

I declare worldwide income and pay tax on arising basis.

As a fundamental level we know that money market funds are actually distributing interest. But is there some technicality here that I need to be concerned about ?

EdSwippet - if you see this message, I would appreciate your response. The @ sign isnt quite working with your username.

Thanks