Confusion over tax on savings

vikkimcd

Hi,
I inherited a certain amount of money when my mum died a couple of years ago, and I had no idea what to do with it, at the time I wasn't really thinking straight, I just had it in my mind that I needed to put it into a savings account. My mum had been putting this money in fixed rate savings accounts at rates of around 5.15% per year, so I did this. Now I am further down the line, I am panicking that I am going to have to pay a chunk of tax, and not sure what to do about that. I cannot get hold of HMRC, they are so busy that the call just gets cut off (waited nearly 1.5 hours per call).
I work part time and earn approx. £14,500 per year, and am about to cancel marriage allowance which I transferred over to my partner some years ago, therefore my tax code threshold is lower (11,000 approx.) Am I right in thinking I fall under the starting savings tax rate? I guess I am going to have to pay something, but I have no idea how to go about doing this. (I have earned approx. £3,000 in interest).
I am aware I have got myself in a bit of a mess, but my mum was my only family and I have not been in a good way, so please understand that I know I have probably made mistakes here. So I have to make the best of what I can going forward. (I was assuming I would put this money into ISAs, i.e. £20k in before April and £20k at the start of the new tax year, that is whole other issue for which I need help!)
Could someone please tell me the best way forward in this situation re: tax?

mebu60

What date did your mother die?

Assuming 06:04:23-05:04:24 was the first tax year you received interest, how much did you earn and how much income tax was paid (P60), how much interest did you receive and what was your personal allowance in that period? Exact information is required for folks to be able to assist with any potential tax liability calculation.

Don't worry about 24/25 just yet, there's time to look at that after the tax year end. 

What I would suggest, if you haven't made any contribution to a Cash ISA this tax year that you do so asap so that the £20k allowance is not lost. Whether there's any benefit tax-wise can be reviewed later. 

Above all, don't beat yourself up about it, no-one will judge you.

slinger2

What would also be nice to know is whether the cash that you have is tied up in fixed rate savings or is available to you. No point thinking about a 24/25 ISA if all the money is tied up.

badmemory

Please do not panic.  Any bank that gives interest is obliged to notify HMRC of the interest they have given.  So unless you are with a very unusual bank then that side is not problem.  Interest earned during 2023-24 would normally have been sorted by now but HMRC is a long way behind normal.  They will notify you if you need to pay tax either with a bill (payable in approx 3 months) or maybe a change to your future tax code.

badmemory

Having had another read it is possible that the tax you may owe after the starter rates will be so low that they will not even bill you.  It used to be £20 but there are so many now (especially pensioners) just going over the need to pay that they are said to have raised the amount.  So again do not worry.  I am sure there is a website where you can check what you may owe to put your mind at rest & hopefully someone will come here & put the link on for you.

Dazed_and_C0nfused

vikkimcd said:

Hi,
I inherited a certain amount of money when my mum died a couple of years ago, and I had no idea what to do with it, at the time I wasn't really thinking straight, I just had it in my mind that I needed to put it into a savings account. My mum had been putting this money in fixed rate savings accounts at rates of around 5.15% per year, so I did this. Now I am further down the line, I am panicking that I am going to have to pay a chunk of tax, and not sure what to do about that. I cannot get hold of HMRC, they are so busy that the call just gets cut off (waited nearly 1.5 hours per call).
I work part time and earn approx. £14,500 per year, and am about to cancel marriage allowance which I transferred over to my partner some years ago, therefore my tax code threshold is lower (11,000 approx.) Am I right in thinking I fall under the starting savings tax rate? I guess I am going to have to pay something, but I have no idea how to go about doing this. (I have earned approx. £3,000 in interest).
I am aware I have got myself in a bit of a mess, but my mum was my only family and I have not been in a good way, so please understand that I know I have probably made mistakes here. So I have to make the best of what I can going forward. (I was assuming I would put this money into ISAs, i.e. £20k in before April and £20k at the start of the new tax year, that is whole other issue for which I need help!)
Could someone please tell me the best way forward in this situation re: tax?

If those figures relate to 2023-24 then there may not be any tax to pay.

You would have £,1810 of the savings starter rate band available (0% tax rate) and £1,000 of the savings nil rate (aka Personal Savings Allowance), so close to £3k in total that would be taxed at 0%.

As ever with tax the devil is in the details so what does your P60 for 2023-24 show your taxable pay was?  And was that your only earnings in the 2023-24 tax year?

Do you know the interest you received for that tax year?

FrugaiMacDugal

You won't be paying a 'chunk' you may have to pay 20% on some of the interest, but still have 80% left.

SVaz

If you qualify for the starter savings rate then you can have over £18000 in income and interest before worrying about tax . 

If , for example, you have £5000 in savings interest for 2024-25, you would owe £189 in tax .

For £10k in interest,  the tax would be £1186. 

If you pay into a pension from your salary,  the tax will be less. 

vikkimcd

Thanks for the comments - how do I notify HMRC of the interest? I cannot get through to them still. (i.e. what Gov form do I search for?)

TheSpectator

vikkimcd said:

Thanks for the comments - how do I notify HMRC of the interest? I cannot get through to them still. (i.e. what Gov form do I search for?)

Did you miss the bit that you don't need to? The banks do it for you.

vikkimcd

I should have said - the money was held in a one year fixed rate savings account. It has now matured, and I guess I am going to put it into ISAs. Am I right in thinking I put £20k in before end of tax year, then £20k in after April 5/6? I don't understand the taxing as well - do I add it into the same ISA, or two separate ISAs? And won't I get taxed on the second one as I'll get £1k of interest for each? I have called my bank to ask for advice, but they seem just as confused! People seem to talk about ISAs as a magic way of hiding interest! (I know that is not accurate, but they are sold as the way to go).