Taxed on Savings - newbie

Dazed_and_C0nfused

Bucki said:

Dazed_and_C0nfused said:

Bucki said:

Hi thanks for the update and advise.
the current online saving is offering 4.60%

I have not seen an ISA offering that close.
are you guys the £2k they taxed me is just estimate until they get a better idea?

trying to u derstand how i could have been taxed 2K on the interested that I got round 2500 - 3000 per year. How is that possible? I dont get it

Ultimately, we are trying to make money out of our own money we have saved all years and then feels like knock on my head … whats point earning 2500-3000 a year and then taxed 2000 in end.

what a disaster

I suspect your maths is letting you down here or you haven't understood your new tax code.

If you are being taxed on £2k then, for most people, that will be either £400 or £800 in extra tax (20% or 40%).  And you would have another £500 or £1,000 being taxed at 0%, so the overall tax rate is less than 20/40%.

Indeed, my math is zero nor understand much on taxes anyway. When I logged onto the Gateway account i had 12K+ personal allowance of which over £3k was deducted = one of them was around 2k taxed on savings.

yet, no clue how it has come to that sum.
in my logic saving 50% at 4.60% is round 200 a month (was at 4.80 initially and dropped) that is round 2500-3000 a year and now paying £2000 tax is beyond my understanding …. Pls help me understand, i am a noob when it comes to math.

Why do you think a £2k reduction in your tax code allowances means you pay £2k extra in tax 🤔

It means your employer/pension payer will deduct tax from an extra £2k of your earnings or pension income.

£2k x 20% = £400 (basic rate payer).  £2k x 40% = £800 (higher rate payer).  If you are Scottish resident it would be different.

Bucki

DRS1 said:

the current online saving is offering 4.60%

I have not seen an ISA offering that close.

Have a look at page 1 of this thread,
Cash ISAs: The Best Currently Available List — MoneySavingExpert Forum

Ahhh i see what u mean.
meaning ita capped at 20K per year ?
if i wanted all 50K in then had to be split into 3 ISA ?

400ixl

Bucki said:

DRS1 said:

the current online saving is offering 4.60%

I have not seen an ISA offering that close.

Have a look at page 1 of this thread,
Cash ISAs: The Best Currently Available List — MoneySavingExpert Forum

Ahhh i see what u mean.
meaning ita capped at 20K per year ?
if i wanted all 50K in then had to be split into 3 ISA ?

Unless you have a partner who can also open an ISA, which would mean you could put in £40k per year between you.

You don't need all £50k in an ISA, just the amount that would take you over £1k of interest per year.

Qyburn

Bucki said:

Indeed, my math is zero nor understand much on taxes anyway. When I logged onto the Gateway account i had 12K+ personal allowance of which over £3k was deducted = one of them was around 2k taxed on savings.

If you pay basic rate tax then those figure mean HMRC is estimating that you receive £3,000 interest. Of that, £1,000 is taxed at 0%, then the £2,000 will be taxed at 20% meaning you pay £400 tax.

Does £3,000 sound correct for your interest received?

Regarding ISA rates, if you're paying 20% on savings interest of 4.6%, then an ISA paying more than 3.68% will be better overall.

horsewithnoname

Give your money away to someone who needs it. Problem solved 

badmemory

Just to confuse you even more!  If you are paying tax on all your interest (you don't**) then an interest rate of 5% in an ordinary account is equal to 4% in an ISA.  There is normally less difference than that so the ISA would win.  I would think that your tax code change means that they are deducting last years tax & an amount for this years, so at the end of this year you will owe nothing & next years tax code won't be as bad.

Banks are obliged to notify HMRC of any interest earned on savings that are not in ISAs.

**  If you are a 20% tax payer then you can earn £1000 interest without having to pay tax on it.

lr1277

There is one possibility, though it might be too late.

My objective in this situation would be to get the money into instact access cash ISA's as soon as possible. As the tax year ends today, it might just be possible to open and fund a tax ISA today.

Does your bank offer cash ISA's? If so and your bank is contactable by phone, you could ask them if you could setup and fund a cash ISA today, would it all be done today. It doesn't matter about the interest rate. If you can set it up today, then from tomorrow onwards you could transfer it to a best paying cash ISA.

Then as tomorrow is the start of a new tax year, you can take your time to find the best paying ISA and open and fund that. Then if you manage to open an ISA today, you could always transfer it into the new ISA.

Like I said it might be too late but worth a try.

Edited to add: the reason I suggest your own bank is because you won't have to do the ID verification you would with a new financial institution. I am not recommending a Yorkshire Building Society ISA, but they said if you are opening an ISA with them, it had to be opened and verified by 8pm yesterday and funded by 8pm today.

Bucki

badmemory said:

Just to confuse you even more!  If you are paying tax on all your interest (you don't**) then an interest rate of 5% in an ordinary account is equal to 4% in an ISA.  There is normally less difference than that so the ISA would win.  I would think that your tax code change means that they are deducting last years tax & an amount for this years, so at the end of this year you will owe nothing & next years tax code won't be as bad.

Banks are obliged to notify HMRC of any interest earned on savings that are not in ISAs.

**  If you are a 20% tax payer then you can earn £1000 interest without having to pay tax on it.

Thanks for your efforts and support.
so for me to follow on this, let’s look at the current interest that I am supposed to get:

50k saving (used to be 4.85% and now 4.60%)
if we calculate last years interest received

50 x 4.85% = £2425 / 12 =£202.08 pm
so for last year I got 2425 interest paid for a year, right? 

As you noted, £1000 is tax free meaning
£2425 - 1000 =£1,425.00 is taxable , right?

so now, i have to pay another 20% on the 1425?
That is £285 tax per year = around £24 per month?


or have I totally messed it up completely. 

Bigwheels1111

Bucki said:

badmemory said:

Just to confuse you even more!  If you are paying tax on all your interest (you don't**) then an interest rate of 5% in an ordinary account is equal to 4% in an ISA.  There is normally less difference than that so the ISA would win.  I would think that your tax code change means that they are deducting last years tax & an amount for this years, so at the end of this year you will owe nothing & next years tax code won't be as bad.

Banks are obliged to notify HMRC of any interest earned on savings that are not in ISAs.

**  If you are a 20% tax payer then you can earn £1000 interest without having to pay tax on it.

Thanks for your efforts and support.
so for me to follow on this, let’s look at the current interest that I am supposed to get:

50k saving (used to be 4.85% and now 4.60%)
if we calculate last years interest received

50 x 4.85% = £2425 / 12 =£202.08 pm
so for last year I got 2425 interest paid for a year, right? 

As you noted, £1000 is tax free meaning
£2425 - 1000 =£1,425.00 is taxable , right?

so now, i have to pay another 20% on the 1425?
That is £285 tax per year = around £24 per month?


or have I totally messed it up completely. 

£285 taxable looks right providing your a 20% tax payer.

£24 per month? ( NO ) years bill is £285.

You could contact HMRC and ask to pay it.

Then your tax code would go back to normal.

Qyburn

Bucki said:

50k saving (used to be 4.85% and now 4.60%)
if we calculate last years interest received

50 x 4.85% = £2425 / 12 =£202.08 pm
so for last year I got 2425 interest paid for a year, right? 

As you noted, £1000 is tax free meaning
£2425 - 1000 =£1,425.00 is taxable , right?

so now, i have to pay another 20% on the 1425?
That is £285 tax per year = around £24 per month?

Your calculation is correct. If HMRC has overestimated your total interest at £3,000 instead of £2,425 then at some point the correct figure will be reported to them. If you've paid too much tax they'll refund the difference. You may be able to correct their estimate in your online account to save waiting.