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Tax on savings interest

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I live in Scotland, I earn £38080 per annum. I pay£1904.04 of this in to my work pension (salary sacrifice) I get a widows pension of £5775 which I pay tax on at source. I put all of this money after tax (£380 am month) into my SIPP. Next year I am due to receive around £11000 in savings interest. I am looking to find out the best way to pay as little tax on this interest as possible. I don't want this money to push me up to pay 42% tax on this interest as I believe this interest payment will put me over the basic tax band of 21%.(£43663) Would it be best to put more money into my workplace pension as salary sacrifice?

Comments

  • Veteransaver
    Veteransaver Posts: 776 Forumite
    500 Posts First Anniversary Name Dropper
    Yes it probably is the simplest solution to sacrifice it,  you get the benefit of National insurance savings too.
    Is the interest due to a long term savings account or something? Eg a 5 year term? It's usually a good idea to consider how you take those out, to avoid getting a large interest payment at the end. Most allow you to opt for monthly or annual interest, although it is often paid away from the account so you lose the benefit of compounding of interest.
  • baz1810
    baz1810 Posts: 3 Newbie
    First Post
    Hi, Yes it was due to a long term savings account, it's only due to not wanting to pay 42% tax on al of it I am looking for the best solution to my tax liability.
  • Albermarle
    Albermarle Posts: 27,963 Forumite
    10,000 Posts Seventh Anniversary Name Dropper
    Have you maximised your ISA allowance ( and maybe your partners if you have one) ?
  • baz1810
    baz1810 Posts: 3 Newbie
    First Post
    Yes my Isa allowance is maxed for the year, it's more about the interest on the savings taking me into a higher tax bracket and having to pay approx £5k in tax on my savings
  • Veteransaver
    Veteransaver Posts: 776 Forumite
    500 Posts First Anniversary Name Dropper
    Is it possible to convert the savings account to a joint account, if you are married and assuming it wouldn't put your spouse into high rate bracket?
    Not sure if any providers allow it though after an account is opened.
    Then you wouldn't need to put as much in your pension, but think you'd still need to do some, or sacrifice it somewhere else like cycling to work scheme, share save scheme for example.
  • AP3
    AP3 Posts: 91 Forumite
    Eighth Anniversary 10 Posts Photogenic Combo Breaker
    I think the best you can do is put it in a pension, assuming you haven't exceeded the yearly limit of £60k. Salary sacrifice into the workplace scheme would be the best way, but you could also just put a lump sum into the SIPP.
  • Yorkie1
    Yorkie1 Posts: 12,037 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    AP3 said:
    I think the best you can do is put it in a pension, assuming you haven't exceeded the yearly limit of £60k. Salary sacrifice into the workplace scheme would be the best way, but you could also just put a lump sum into the SIPP.
    OP earns about £38K, so is limited to earnings rather than the higher limit of £60K
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