Income Tax due on Savings Interest

Bluebay

Hi, looking for advice on the tax due on savings.
I am retired on a company pension of £15.5K not state pensionable age, therefore currently a basic rate tax payer. Will all my savings interest above the PSA and SSRate be taxed at 20%.                                                                                OR
As I expect to get approximately £35K ( Non ISA ) savings interest this tax year. Plus an extra £15K taxable interest from a pension back payment.
Are my interest payments then classed as income to take me into the higher rate tax band or taxed solely as interest at 20%? 
 I live in Scotland ( different tax system ) Scottish tax tiered system is 42% from £43663 to £75K.
Any advice from the knowledgeable people on here would be greatly appreciated.

FrugaiMacDugal

Have a wee play with this wee gadget, mind and hit the Scotland icon at top.

Dazed_and_C0nfused

Bluebay said:

Hi, looking for advice on the tax due on savings.
I am retired on a company pension of £15.5K not state pensionable age, therefore currently a basic rate tax payer. Will all my savings interest above the PSA and SSRate be taxed at 20%.                                                                                OR
As I expect to get approximately £35K ( Non ISA ) savings interest this tax year. Plus an extra £15K taxable interest from a pension back payment.
Are my interest payments then classed as income to take me into the higher rate tax band or taxed solely as interest at 20%? 
 I live in Scotland ( different tax system ) Scottish tax tiered system is 42% from £43663 to £75K.
Any advice from the knowledgeable people on here would be greatly appreciated.

Scottish government doesn't have a say over tax on savings and dividends so it is the UK higher rate limit that is particularly important for you.

But with taxable income of at least £65k you are clearly going to be a higher rate payer anyway.

Tax on interest will be a mix of 0%, 20% and 40% for you, 42% won't be relevant.

Bluebay

Hi, @Dazed_and_C0nfused, thank you for your knowledge and advice, I was not aware that savings interest did not come under the control of the devolved Government, thankfully for me.
 As you stated 40% tax above £50,270 is much better then 42% above £43663 as I thought it could be. I have never been a higher rate tax payer or been in this financial situation before so it was the complete unknown to me. Thanks again

Dazed_and_C0nfused

You might find this worth a read.

https://www.litrg.org.uk/tax-nic/income-tax/scottish-income-tax/scottish-income-tax-more-detail

eskbanker

Bluebay said:

I expect to get approximately £35K ( Non ISA ) savings interest this tax year

That raises a wider issue - you must have a huge pot of cash to generate that, presumably high six or low seven figures?  Unless you have imminent plans for large chunks of it, have you evaluated investing at least some of it to minimise real-terms value loss from inflation?

Bluebay

eskbanker said:

Bluebay said:

I expect to get approximately £35K ( Non ISA ) savings interest this tax year

That raises a wider issue - you must have a huge pot of cash to generate that, presumably high six or low seven figures?  Unless you have imminent plans for large chunks of it, have you evaluated investing at least some of it to minimise real-terms value loss from inflation?

Hi @eskbanker , you are correct in the size of the pot of cash, I have most of it in various terms of Fixed rate accounts which are currently returning above inflation. This will most probably not be the case in the future when the accounts reach maturity. I appreciate the shares advice, it is not something I am well informed on. At present I have no imminent plans. Maybe now I`m retired I should just be a bit more adventurous!

Albermarle

Bluebay said:

eskbanker said:

Bluebay said:

I expect to get approximately £35K ( Non ISA ) savings interest this tax year

That raises a wider issue - you must have a huge pot of cash to generate that, presumably high six or low seven figures?  Unless you have imminent plans for large chunks of it, have you evaluated investing at least some of it to minimise real-terms value loss from inflation?

Hi @eskbanker , you are correct in the size of the pot of cash, I have most of it in various terms of Fixed rate accounts which are currently returning above inflation. This will most probably not be the case in the future when the accounts reach maturity. I appreciate the shares advice, it is not something I am well informed on. At present I have no imminent plans. Maybe now I`m retired I should just be a bit more adventurous!

Although people shy away from investments as they perceive they are too risky, in fact having so much in cash is also quite a risky strategy in the long run.
There is a MSE savings and investments forum that could be worth a look.

poseidon1

Bluebay said:

eskbanker said:

Bluebay said:

I expect to get approximately £35K ( Non ISA ) savings interest this tax year

That raises a wider issue - you must have a huge pot of cash to generate that, presumably high six or low seven figures?  Unless you have imminent plans for large chunks of it, have you evaluated investing at least some of it to minimise real-terms value loss from inflation?

Hi @eskbanker , you are correct in the size of the pot of cash, I have most of it in various terms of Fixed rate accounts which are currently returning above inflation. This will most probably not be the case in the future when the accounts reach maturity. I appreciate the shares advice, it is not something I am well informed on. At present I have no imminent plans. Maybe now I`m retired I should just be a bit more adventurous!

If you don't want take too much of a plunge in the investment markets, have a close look at investing direct in  low coupon government gilts for tax free capital gains. 

This is covered from time to time over in the MSE Savings and Investments forum, and if you lack the knowledge to jump in and try for yourself there are always specialist wealth manager/ stockbrokers who can (for a fee) put a portfolio together for you.

Beyond that and depending on your marital status and whether you have children, IHT looks as if it may also be a concern worth broaching with an IFA. 

In the meantime, happy retirement!