Tax on interest

20122013

Hello. I am expecting some money in the next few months, I have tried reading https://www.gov.uk/apply-tax-free-interest-on-savings  to see how tax on interests work.

I have used up my £20K tax free allowance this year and I have no income apart from some bank interests.

I would like to understand some more so I can make plans.  From what I understand even if I have no income, any interest over £5000 will be taxable. as  such, would it be more tax efficient to invest in Stocks and Shares (not day trading) at least it will not get tax until I sell. I have to pay trading fees but are there other fees I need to pay ?  I will have to pay tax whatever ways I choose but a little less would be great.

eskbanker

Ignoring income from ISAs, you can earn up to £18,570 of savings interest without paying income tax if you don't have any other income.

If you found the gov.uk document hard to understand, you could try the MSE equivalent:

https://www.moneysavingexpert.com/savings/tax-free-savings/

Tax on savings interest certainly wouldn't be a good rationale for investing in stocks and shares!

20122013

eskbanker said: Tax on savings interest certainly wouldn't be a good rationale for investing in stocks and shares!

I was also thinking of better chance of beating inflation as unsure any other options (without having to start a business etc).

eskbanker

20122013 said:

eskbanker said: Tax on savings interest certainly wouldn't be a good rationale for investing in stocks and shares!

I was also thinking of better chance of beating inflation as unsure any other options (without having to start a business etc).

Well that's a different reason, although still not necessarily a good one!  I imagine it will have been covered in some of your other threads, but you ought to step back and consider what your objectives are for this money, and in particular when you're likely to need it, before deciding on the most appropriate route to get there....

Dazed_and_C0nfused

20122013 said:

Hello. I am expecting some money in the next few months, I have tried reading https://www.gov.uk/apply-tax-free-interest-on-savings  to see how tax on interests work.

I have used up my £20K tax free allowance this year and I have no income apart from some bank interests.

I would like to understand some more so I can make plans.  From what I understand even if I have no income, any interest over £5000 will be taxable. as  such, would it be more tax efficient to invest in Stocks and Shares (not day trading) at least it will not get tax until I sell. I have to pay trading fees but are there other fees I need to pay ?  I will have to pay tax whatever ways I choose but a little less would be great.

If you genuinely have no other income then why wouldn't you be able to use your Personal Allowance (£12,570 or £11,310)?

20122013

Dazed_and_C0nfused said

If you genuinely have no other income then why wouldn't you be able to use your Personal Allowance (£12,570 or £11,310)?

Appreciate the question, very helpful.  

Dazed_and_C0nfused

20122013 said:

Dazed_and_C0nfused said

If you genuinely have no other income then why wouldn't you be able to use your Personal Allowance (£12,570 or £11,310)?

Appreciate the question, very helpful.  

Interest is taxed in a particular way.

You have to use your Personal Allowance first.

Then, if it applies, you can use he savings starter rate band (upto £5,000 interest taxed at 0%).

And only then can you use the savings nil rate band (aka Personal Savings Allowance) of upto £1,000 also taxed at 0%.

Qyburn

By the way when people say "You have to use your Personal Allowance first" that's not something you have to actively do yourself.  HMRC will work it out using all the applicable allowances and bands.

LITRG

Hello, sorry for coming to this late. You may find our guidance on the taxation of interest helpful, as it can be very complex: https://www.litrg.org.uk/savings-property/tax-savings-and-investments/tax-savings-income/personal-savings-allowance