Understanding savings tax

S_C

I don't fully understand this savings tax. 

If you earn you have to pay tax on it. 
That money goes into your bank account. 
You then can be taxed if the interest the bank pays? 

What about ISA?
What if you have a current account?
What if you have multiple current accounts? 
What if you have multiple savings accounts? 

When does this tax kick in? Just trying to understand when this savings tax applies?

eskbanker

There is no 'savings tax', but all interest earned from (non-ISA) savings is treated as income for taxation purposes, so is subject to income tax just like your wages.

Bigwheels1111

The basic's.

The first, £12,570 you earn from wages, pension or interest is tax free.

The next £ 5,000 if interest is tax free, the starter savings rate.

The next £ 1,000 is your personal savings allowance ( PSA ) Also tax free.

Use this example.

You earn £16,000, you take that away from £18,570 that leaves £2570 of interest tax free.

You earn £  4,000, you take that away from £18,570 that leaves £14,570 of interest tax free.

MeteredOut

And if you earn £17,570, you take that away from £18,570 that leaves £1,000 of interest tax free.

But if you earn £18,570, you take that away from £18,570 that also leaves £1,000 of interest tax free.

S_C

Ok so the figures above are what someone had earned AFTER they have received their salary into their account and the interest paid by the bank is £18 or more?

What if someone earns £10k a month after paying tax and leave the money in their account and have 0% interest earned, I assume they pay nothing more as the bank aren't paying then any interest?

eskbanker

S_C said:

Ok so the figures above are what someone had earned AFTER they have received their salary into their account and the interest paid by the bank is £18 or more?

What if someone earns £10k a month after paying tax and leave the money in their account and have 0% interest earned, I assume they pay nothing more as the bank aren't paying then any interest?

The above examples are all about low earners and I don't believe you've given any indication of your salary, although imagine £10K a month is hypothetical in the other direction?

Roughly how much do you earn (nearest £10K should do) and approximately how much do you have in savings?

MeteredOut

S_C said:

Ok so the figures above are what someone had earned AFTER they have received their salary into their account and the interest paid by the bank is £18 or more?

What if someone earns £10k a month after paying tax and leave the money in their account and have 0% interest earned, I assume they pay nothing more as the bank aren't paying then any interest?

Separate out what they earn, and think about the interest they earn on that amount only.

If they don't earn interest on that £10K, there's no more tax to pay.

If they do earn interest on it, they can earn between £0 (additional rate tax payers) and £18570 (people with no taxable income) in interest before they pay tax on it. And how much tax they pays depends on their income.

S_C

Ok just one final scenario..... 

Let's say I have £100k in an ISA.
£10k salary every month. 

0% interest on the current account that the salary comes into. I assume no tax to pay?

MeteredOut

S_C said:

Ok just one final scenario..... 

Let's say I have £100k in an ISA.
£10k salary every month. 

0% interest on the current account that the salary comes into. I assume no tax to pay?

Correct. And even if there was interest, there would be no tax as its in an ISA.

But your salary would not go into an ISA automatically - you have to put it there, and you can only put £20K into an ISA each tax year.

slinger2

S_C said:

Ok just one final scenario..... 

Let's say I have £100k in an ISA.
£10k salary every month. 

0% interest on the current account that the salary comes into. I assume no tax to pay?

Depends what you do with the £10k. But if you just spent it there will be no more tax pay, except of course VAT, fuel tax, etc. etc. on what you spend.

S_C

MeteredOut said:

S_C said:

Ok just one final scenario..... 

Let's say I have £100k in an ISA.
£10k salary every month. 

0% interest on the current account that the salary comes into. I assume no tax to pay?

Correct. And even if there was interest, there would be no tax as its in an ISA.

But your salary would not go into an ISA automatically - you have to put it there, and you can only put £20K into an ISA each tax year.

Ah right so even if the ISA gave me an extra £20k a year in interest for the £100k I've got it in there, it's only my current account that would dictate if the interest the bank pays is over £18k, when the tax may need to kick in.

Thanks everyone