Maximising interest and the personal savings allowance

millymollymandy73

Hello

I would appreciate some feedback on whether I have done my maths correctly here. 

For the next tax year I believe I will go up into a higher tax bracket, though I don't seem to be able to find clear information on how the personal savings allowance applies in Scotland and at what income the allowance goes down to £500. 

I have a fixed savings account that is due to mature in the next tax year - I deposited £3500 on opening for an 18 month term with a 5.5% AER. So I think the interest will be approx £300 and applies at the end. 

I also have a Natwest regular saver at 6.17% AER (up to £5000) with £3,815 saved. I am getting about £17 interest paid monthly, so over the next year that would be about £200 in interest. 

I also have a Co-op regular saver just opened where I can save up to £250pcm with 7% AER (maxed out £114 interest at the end of the year). 

I can afford to max all of these out, but it doesn't make sense to if I am going to go over the personal savings allowance. I have a Trading 212 Cash ISA at 4.78% for anything over that. 

Does it make more sense to take money out of the Natwest account so that earns less interest in order to save into the Coop account instead? 

It was simpler before I had to account for a limit in tax-free savings interest and now I am confusing myself over what is the best way to maximize my earnings! Or whether the different is pennies and not worth thinking about this much...

Maths input appreciated!

DRS1

For the next tax year I believe I will go up into a higher tax bracket, though I don't seem to be able to find clear information on how the personal savings allowance applies in Scotland and at what income the allowance goes down to £500. 

According to MSE you still use the English threshold even if you are a Scottish tax payer

Personal savings allowance

DRS1

I have a fixed savings account that is due to mature in the next tax year - I deposited £3500 on opening for an 18 month term with a 5.5% AER. So I think the interest will be approx £300 and applies at the end. 

Not sure about this but some 18 month bonds pay interest after the first 12 months and then pay a final slug of interest at the 18 month mark.  If the first bit of interest falls into a different tax year would it help at all to treat it as paid at the 12 month mark rather than the 18 month mark?  I know people on here would say it is wrong (depending on the terms of the bond) but I doubt HMRC would object.  Of course you may not want it taxed in the earlier tax year but maybe it would help your figures.

RipleyG

DRS1 said:

If the first bit of interest falls into a different tax year would it help at all to treat it as paid at the 12 month mark rather than the 18 month mark?  I know people on here would say it is wrong (depending on the terms of the bond) but I doubt HMRC would object. 

Er, yes. We'd say it's wrong because it's tax evasion - which is a criminal offence with a potential sentence of 6 months plus a fine. So I think you can be reasonably confident HMRC would object 😂. Interest is 'received' from a tax perspective at the point you can actually withdraw it from the account. With a lot of (not all) fixed rate accounts, the interest is only accessible at maturity, and therefore counts for tax in that tax year. 

If you become a 40% tax payer then both Natwest and Coop interest rates will effectively be lower than the one on your ISA. 

Do you have a salary sacrifice pension arrangement? If so, check whether the payments you make to that bring your adjusted income back into the 20% bracket. If you are in salary sacrifice and they don't , you could consider increasing your pension payments so that it does. That was you'd be saving both tax and NI contributions on the payment amount, as well as keeping your £1000 savings interest allowance. 

zagfles

RipleyG said:

DRS1 said:

If the first bit of interest falls into a different tax year would it help at all to treat it as paid at the 12 month mark rather than the 18 month mark?  I know people on here would say it is wrong (depending on the terms of the bond) but I doubt HMRC would object. 

Er, yes. We'd say it's wrong because it's tax evasion - which is a criminal offence with a potential sentence of 6 months plus a fine. So I think you can be reasonably confident HMRC would object 😂. Interest is 'received' from a tax perspective at the point you can actually withdraw it from the account. With a lot of (not all) fixed rate accounts, the interest is only accessible at maturity, and therefore counts for tax in that tax year. 

If you become a 40% tax payer then both Natwest and Coop interest rates will effectively be lower than the one on your ISA. 

Do you have a salary sacrifice pension arrangement? If so, check whether the payments you make to that bring your adjusted income back into the 20% bracket. If you are in salary sacrifice and they don't , you could consider increasing your pension payments so that it does. That was you'd be saving both tax and NI contributions on the payment amount, as well as keeping your £1000 savings interest allowance. 

Well it would seem a lot of banks participate in this "tax evasion" as evidenced by the several long threads here about banks reporting payment of inaccessible interest to HMRC, causing utter confusion, eg
Fixed Bond Interest Tax Bill Despite Interest Not Being "Accessible" — MoneySavingExpert Forum

DRS1

RipleyG said:

DRS1 said:

If the first bit of interest falls into a different tax year would it help at all to treat it as paid at the 12 month mark rather than the 18 month mark?  I know people on here would say it is wrong (depending on the terms of the bond) but I doubt HMRC would object. 

Er, yes. We'd say it's wrong because it's tax evasion - which is a criminal offence with a potential sentence of 6 months plus a fine. So I think you can be reasonably confident HMRC would object 😂. Interest is 'received' from a tax perspective at the point you can actually withdraw it from the account. With a lot of (not all) fixed rate accounts, the interest is only accessible at maturity, and therefore counts for tax in that tax year. 

If you become a 40% tax payer then both Natwest and Coop interest rates will effectively be lower than the one on your ISA. 

Do you have a salary sacrifice pension arrangement? If so, check whether the payments you make to that bring your adjusted income back into the 20% bracket. If you are in salary sacrifice and they don't , you could consider increasing your pension payments so that it does. That was you'd be saving both tax and NI contributions on the payment amount, as well as keeping your £1000 savings interest allowance. 

Tax evasion is where you don't declare the interest at all - think Lester Pigott.

Over the years I have had long conversations with people at HMRC about what interest I have received in a tax year.  Not once have they said "Can you access this interest?"

Pension contributions are a good idea - even if they are not done by salary sacrifice.

surreysaver

I can afford to max all of these out, but it doesn't make sense to if I am going to go over the personal savings allowance. I have a Trading 212 Cash ISA at 4.78% for anything over that. 

60% of something is better than 0% of nothing. However, if you can earn more than what you would be left with after tax, then an ISA is the place to put it (I'm assuming Scottish rates are the same as England and Wales).
You might want to bear in mind how likely each account might change its interest rate compared to each other before removing money from an account which has restrictions on how much you can pay in. If the interest rate after tax is only slightly less than the ISA, I'd be inclined to leave the money where it is 

RipleyG

DRS1 said:

 Tax evasion is where you don't declare the interest at all - think Lester Pigott.

Over the years I have had long conversations with people at HMRC about what interest I have received in a tax year.  Not once have they said "Can you access this interest?"

Tax evasion is any deliberate attempt to not pay, or to underpay taxes. It includes deliberately under-reporting of a source of income.

The information about when tax is due on savings interest from fixed rate/term accounts is very clearly explained in HMRCs tax manual here: https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim2440

EthicsGradient

RipleyG said:

DRS1 said:

 Tax evasion is where you don't declare the interest at all - think Lester Pigott.

Over the years I have had long conversations with people at HMRC about what interest I have received in a tax year.  Not once have they said "Can you access this interest?"

Tax evasion is any deliberate attempt to not pay, or to underpay taxes. It includes deliberately under-reporting of a source of income.

The information about when tax is due on savings interest from fixed rate/term accounts is very clearly explained in HMRCs tax manual here: https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim2440

But that wasn't so "clearly explained" that HMRC employees themselves understood it (which is why some said on their forum that it was when it was credited to the account, even if inaccessible - it took several months of questioning them to get them to all agree it was about accessibility), nor was it clear enough for them to set up their reporting mechanism so that this could be followed for PAYE tax in practice. Which is why many banks do what they're told in the mechanism and report credited income, rather than accessible, and why HMRC then alters PAYE tax allowances based on credited income. It's just self-assessing people who are expected to follow the tax manual explanation.

millymollymandy73

Part of the issue is that 1 day a week of my work is temporary and I don't know if I will get it for the full year, so I may not even definitely cross the threshold. So if there is not a lot of difference between depositing the money in my cash ISA v regular saver if it is taxed, then it makes sense to put it in a regular saver as if my PSA stays at £1000 then I would earn more on it. 

If you become a 40% tax payer then both Natwest and Coop interest rates will effectively be lower than the one on your ISA.  

Do you know how much lower/ how I can work this out?

Do you have a salary sacrifice pension arrangement? If so, check whether the payments you make to that bring your adjusted income back into the 20% bracket. If you are in salary sacrifice and they don't , you could consider increasing your pension payments so that it does. That was you'd be saving both tax and NI contributions on the payment amount, as well as keeping your £1000 savings interest allowance. 

No I have a Scottish NHS pension and this does not seem to be an option, but thank you

60% of something is better than 0% of nothing. However, if you can earn more than what you would be left with after tax, then an ISA is the place to put it (I'm assuming Scottish rates are the same as England and Wales).
You might want to bear in mind how likely each account might change its interest rate compared to each other before removing money from an account which has restrictions on how much you can pay in. If the interest rate after tax is only slightly less than the ISA, I'd be inclined to leave the money where it is 

If not clear, I will save the money either way, my question is just about working out whether it will earn more in a regular saver or my cash ISA. They are all variable rates so theoretically any could change! It seems like that may be more likely with the cash ISA based on the trends over the last year but I guess we can't really know, or in what direction.

legasov

millymollymandy73 said:

I can afford to max all of these out, but it doesn't make sense to if I am going to go over the personal savings allowance. I have a Trading 212 Cash ISA at 4.78% for anything over that. 

4.78% for full 12 months or just for 90 days?