Tax implications and apportionment

Bristolsaver41

Hi all,

Hello to all, I'm new to the forum and give my apologies if this has been asked many times.

My wife and I have a 2 year fixed term savings account maturing soon. This means I will have to declare interest in my tax return coming up in January 2025. I assume this tax return will only need account for interest paid out in the relevant tax year i.e. April 2023 - March 2024. In this year as the savings account was in joint names, but the investment was from my wife's inheritance so technically it wasn't my money. But as I understand it, the interest is still split 50/50, so the interest of just under £4,000 is apportioned equally between us for reporting purposes.

My wife is a base rate tax payer and as her portion is less than £10k she doesn't need to complete a tax return.

As i complete a tax return each year I will need to include it. Being a high rate tax payer I account for say £2,000 (my share), less £500 allowance means I'm potentially paying 40% tax on the balance of £1,500 declared.

Do I have this right??

Any advice is welcomed.

Albermarle

You are generally correct, but a couple of points.

When to account for interest in a multi year fixed rate account is a bit of a grey area.
If the first year interest was paid out to your bank account after one year, then that is clear.
If the interest was just added to your account but was unavailable to you, then technically for tax purposes, the interest is only available/taxable at the end of the fixed term. so you should  report two years worth of interest in the tax year the product matures. 
However to complicate matters, savings providers often report the interest to HMRC annually ( even if it is not available for withdrawal) and they tax it annually.
So they break their own rules in effect.

Bristolsaver41

Thanks for the reply, this particular account physically paid out the interest each year. 

So it's year 1 I'm including into my tax return for 23/24 in January. Year 2 interest which has just physically been paid out will be included in my next 24/25 tax return.

Although the invested amount was from my wife's inheritance, it would appear we shot ourselves in the foot tax wise by investing in joint names. Clearly we didn't think this through before investing. I now owe £600 for each of the 2 years!!

This time around I think it'll be 2 ISA's before the end of the tax year, and another 2 ISA's after the start of the next tax year.

subjecttocontract

Bristolsaver41 said:

Thanks for the reply, this particular account physically paid out the interest each year. 

So it's year 1 I'm including into my tax return for 23/24 in January. Year 2 interest which has just physically been paid out will be included in my next 24/25 tax return.

Although the invested amount was from my wife's inheritance, it would appear we shot ourselves in the foot tax wise by investing in joint names. Clearly we didn't think this through before investing. I now owe £600 for each of the 2 years!!

This time around I think it'll be 2 ISA's before the end of the tax year, and another 2 ISA's after the start of the next tax year.

Relax in the knowledge that you are doing something worthwhile for your Country. Paying into the tax coffers is always received with Thanks from a gratefully nation who knows that if you weren't paying it then some of them might need to make up the shortfall.

Dazed_and_C0nfused

Bristolsaver41 said:

Hi all,

Hello to all, I'm new to the forum and give my apologies if this has been asked many times.

My wife and I have a 2 year fixed term savings account maturing soon. This means I will have to declare interest in my tax return coming up in January 2025. I assume this tax return will only need account for interest paid out in the relevant tax year i.e. April 2023 - March 2024. In this year as the savings account was in joint names, but the investment was from my wife's inheritance so technically it wasn't my money. But as I understand it, the interest is still split 50/50, so the interest of just under £4,000 is apportioned equally between us for reporting purposes.

My wife is a base rate tax payer and as her portion is less than £10k she doesn't need to complete a tax return.

As i complete a tax return each year I will need to include it. Being a high rate tax payer I account for say £2,000 (my share), less £500 allowance means I'm potentially paying 40% tax on the balance of £1,500 declared.

Do I have this right??

Any advice is welcomed.

You are somewhat overcomplicating things.

All you do is declare the correct amount of taxable interest.  £2,000 using your example.

There is no allowance of £500 and no £1,500 to be "declared".

The Self Assessment calculation will show how the interest is taxed, probably £500 x 0% and £1,500 x 40%.

But all £2,000 is taxable income and can impact other things like tapered Personal Allowance, High Income Child Benefit Charge and Married Couple's Allowance.

Bristolsaver41

Thanks for the last comment, I just declare the full £2,000 in the tax return makes perfect sense...I guess my analytical brain was just trying to pre-empt the calculation so I have a t least some kind of idea how it works.

Thanks for all the 'helpful' replies

Bigwheels1111

I feel your pain  , I got hit with over 10k CGT a few years ago.
I’m not bitter, not at allllllllllllllll.