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Tax on Savings Interest in Unusual Circumstances
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ksg1981
Posts: 6 Forumite


Hi,
I’ve read the guide on this site relating to tax on savings interest.
I understand that if I go over all of my various allowances, my tax code for next year will be changed in order to collect the tax due.
I have a large amount of money earning interest outside of ISAs (I’ve used up my full ISA allowance for the year). Due to high interest rates on my fixed term bonds it’s certain that this financial year I will end up going over my tax free allowances, and will owe some tax, and so my tax code next year will be altered.
Here’s where it gets complicated. Next year there may be a significant drop in my income due to cutting back the amount of work I do. My new salary would be below my standard personal tax free allowance, even taking into account the change expected in my tax code next year. It’s likely that, next year, no tax would be taken from my income at all.
So, what would happen with regards to the tax that would be due on my savings income this year? Would it fall away, or would HMRC contact me the year after next asking me to pay the tax by another method?
Thanks in advance!
I’ve read the guide on this site relating to tax on savings interest.
I understand that if I go over all of my various allowances, my tax code for next year will be changed in order to collect the tax due.
I have a large amount of money earning interest outside of ISAs (I’ve used up my full ISA allowance for the year). Due to high interest rates on my fixed term bonds it’s certain that this financial year I will end up going over my tax free allowances, and will owe some tax, and so my tax code next year will be altered.
Here’s where it gets complicated. Next year there may be a significant drop in my income due to cutting back the amount of work I do. My new salary would be below my standard personal tax free allowance, even taking into account the change expected in my tax code next year. It’s likely that, next year, no tax would be taken from my income at all.
So, what would happen with regards to the tax that would be due on my savings income this year? Would it fall away, or would HMRC contact me the year after next asking me to pay the tax by another method?
Thanks in advance!
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Comments
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You have the option to make a payment to cover the tax owed.If you hold fixed term accounts, and some of these extend into the next tax year, have interest credited to the account, and do not permit early withdrawals, then it would be worth noting that interest on such accounts does not arise for tax until maturity. This could reduce the amount of tax you would need to pay.1
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Basic facts needed to give you the best advice.Amount of savings at what % or interest amount.Do you earn over £12,570 to £17,570 a year or more.What will you earn next year.0
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You could try to get more of your interest paid annually, rather than monthly. That way more will count towards your 25/26 income and less for 24/25.0
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If you file SA then you may well have the opportunity to pay any tax owed directly rather than through your tax code.
However, if it is a very large amount then you may also get into Payments on Account.
Post your actual figures for better advice.0 -
Bigwheels1111 said:Basic facts needed to give you the best advice.Amount of savings at what % or interest amount.Do you earn over £12,570 to £17,570 a year or more.What will you earn next year.
I currently earn around £14k, so pay a little bit of income tax. Expected salary is expected to fall to about £8k, but the fall won’t happen until September.0 -
slinger2 said:You could try to get more of your interest paid annually, rather than monthly. That way more will count towards your 25/26 income and less for 24/25.0
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Ayr_Rage said:If you file SA then you may well have the opportunity to pay any tax owed directly rather than through your tax code.
However, if it is a very large amount then you may also get into Payments on Account.
Post your actual figures for better advice.0 -
ksg1981 said:Hi,
I’ve read the guide on this site relating to tax on savings interest.
I understand that if I go over all of my various allowances, my tax code for next year will be changed in order to collect the tax due.
I have a large amount of money earning interest outside of ISAs (I’ve used up my full ISA allowance for the year). Due to high interest rates on my fixed term bonds it’s certain that this financial year I will end up going over my tax free allowances, and will owe some tax, and so my tax code next year will be altered.
Here’s where it gets complicated. Next year there may be a significant drop in my income due to cutting back the amount of work I do. My new salary would be below my standard personal tax free allowance, even taking into account the change expected in my tax code next year. It’s likely that, next year, no tax would be taken from my income at all.
So, what would happen with regards to the tax that would be due on my savings income this year? Would it fall away, or would HMRC contact me the year after next asking me to pay the tax by another method?
Thanks in advance!
You can help HMRC collect the right amount by keeping your personal tax account up to date in relation to the amount you expect to earn, each time this changes. From what you’ve said, you may owe extra tax this year and it sounds like you’ll be in a position next year where you’ll be eligible for a higher allowance for savings interest. HMRC could issue a P800 next summer for this year’s tax due, or move you to Simple Assessment.
I’d focus on putting away the tax you think will be due - in a savings account! - and wait and see what approach they decide fits your circumstances. It’s least likely to be Self Assessment unless you’re receiving over £10k in untaxed interest or have more complex affairs than you’ve shared in your post.Fashion on the Ration
2024 - 43/66 coupons used, carry forward 23
2025 - 62/891 -
ksg1981 said:Hi,
I’ve read the guide on this site relating to tax on savings interest.
I understand that if I go over all of my various allowances, my tax code for next year will be changed in order to collect the tax due.
I have a large amount of money earning interest outside of ISAs (I’ve used up my full ISA allowance for the year). Due to high interest rates on my fixed term bonds it’s certain that this financial year I will end up going over my tax free allowances, and will owe some tax, and so my tax code next year will be altered.
Here’s where it gets complicated. Next year there may be a significant drop in my income due to cutting back the amount of work I do. My new salary would be below my standard personal tax free allowance, even taking into account the change expected in my tax code next year. It’s likely that, next year, no tax would be taken from my income at all.
So, what would happen with regards to the tax that would be due on my savings income this year? Would it fall away, or would HMRC contact me the year after next asking me to pay the tax by another method?
Thanks in advance!
And collection of the tax due for the current tax year (2024-25) via the tax code for the next tax year (2025-26) is highly unlikely. Not impossible but definitely not the norm.
Also, the only allowance you have for savings interest is your Personal Allowance, once that has been used any non ISA interest will be taxed, albeit from what you've posted the first ~£4.5k will be taxed at 0% (or ~£3.7k if you have applied for Marriage Allowance).
If you prefer not to pay any tax owed for 2024-25 via your 2026-27 tax code (HMRC's preference) then you can simply make a voluntary payment once the tax owed has been quantified, in about a years time.
If you owe enough tax that collection via your tax code isn't possible (per HMRC's rules*) then they will issue a Simple Assesment and you will have to pay the tax direct to HMRC by 31 January 2026 (or later if the Simple Assessment is issued within 3 months of 31 January 2026).
*as you have a smallish normal PAYE tax liability this could be as low as a few hundred £'s
If you keep HMRC informed (via your Personal Tax Account) of your expected earnings then that will help you paying tax unnecessarily during 2025-26.0 -
ksg1981 said:Bigwheels1111 said:Basic facts needed to give you the best advice.Amount of savings at what % or interest amount.Do you earn over £12,570 to £17,570 a year or more.What will you earn next year.
I currently earn around £14k, so pay a little bit of income tax. Expected salary is expected to fall to about £8k, but the fall won’t happen until September.Well if its 14k this year that leaves £4,570 of interest tax free.8K next year leaves £10,570 of tax free interest.£12,570 or earnings, pension or interest is tax free.The next 5k of interest is tax free ( starter savings rate )Then 1k Personal saving allowance.Total £18,570.You will pay 20% tax on the amount between £12,570 and 14k that is all.If the interest takes you over £18,570 you will also pay tax on that.If interest is over 10k a self assessment return will need filing.Easy job take's 15 mins. Took longer to register.0
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