tax on savings interest

UKSBD

I do an annual self assessment and fill in the interest I receive in the rellevant sections, so this doesn't apply to me.

Both my kids though are employed and don't have to do a self assessment.

Both have between 20 and 30k in savings accounts (bonds, as they were paying higher interest than ISA's when taking them out).

Haven't worked out how much interest they will receive yet, but it will be close (if not more than £1k

How does the tax work on this if they don't have to complete a self assesment?

They will both me moving £20k in to ISA's once bonds have matured.

masonic

They don't need to register for self assessment as a result of bank interest unless they receive more than £10k. For lower amounts, HMRC will automatically adjust their tax code to collect unpaid tax.

Sarahspangles

Banks and building societies report the interest to HMRC and they recover the tax after the annual tax calculation and make an adjustment to the notice of coding for the following year to prevent underpayment. 

So it’s worth shifting the savings to an ISA 

Dazed_and_C0nfused

Sarahspangles said:

Banks and building societies report the interest to HMRC and they recover the tax after the annual tax calculation and make an adjustment to the notice of coding for the following year to prevent underpayment. 

So it’s worth shifting the savings to an ISA 

Providing the ISA gives a better return than a non ISA account does after any tax liability is factored in 😀

Sarahspangles

Dazed_and_C0nfused said:

Sarahspangles said:

Banks and building societies report the interest to HMRC and they recover the tax after the annual tax calculation and make an adjustment to the notice of coding for the following year to prevent underpayment. 

So it’s worth shifting the savings to an ISA 

Providing the ISA gives a better return than a non ISA account does after any tax liability is factored in 😀

True.

The HMRC approach to this isn’t working well for me! I’d rather owe them than they owe me.

UKSBD

Thanks all.

The lads bond expires next month and it looks like ISA's are paying virtually the same as bonds now anyway so he will probably transfer to an ISA then.

It looks as though they will both be just below £1k in interest anyway, but it makes sense to start using ISA's now they are getting close.

Dazed_and_C0nfused

UKSBD said:

Thanks all.

The lads bond expires next month and it looks like ISA's are paying virtually the same as bonds now anyway so he will probably transfer to an ISA then.

It looks as though they will both be just below £1k in interest anyway, but it makes sense to start using ISA's now they are getting close.

Presumably they are earning enough that the £5,000 savings starter rate band (0%) isn't available but if not that is something to factor in.

UKSBD

Dazed_and_C0nfused said:

UKSBD said:

Thanks all.

The lads bond expires next month and it looks like ISA's are paying virtually the same as bonds now anyway so he will probably transfer to an ISA then.

It looks as though they will both be just below £1k in interest anyway, but it makes sense to start using ISA's now they are getting close.

Presumably they are earning enough that the £5,000 savings starter rate band (0%) isn't available but if not that is something to factor in.

Thanks

The one is well over (earning £20k). the other is borderline (£17k)

As the ISA interest rates are very similar to non ISA though, I think it makes sense for them to start building up their ISA pots

UKSBD

Does the £5,000 allowance include the £1000 allowance? 

ie. you can have an income of £17,570 and then you can earn £1,000 of interest before tax on savings starts

Or is the £1,000 part of the £5,000?

ie. once earnings hit £17,570 you start paying interest on any savings

ColdIron

UKSBD said:

Does the £5,000 allowance include the £1000 allowance?

No. They are separate

ie. you can have an income of £17,570 and then you can earn £1,000 of interest before tax on savings starts

Yes

Or is the £1,000 part of the £5,000?

No. They are still separate

ie. once earnings hit £17,570 you start paying interest on any savings

No

masonic

The two are separate.