Interest paid into joint account - tax help!

teafoil22

Hi everyone, thanks in advance for your help.

This is the first time my husband and I have enough saved to be at risk of hitting more than £500 interest in one tax year. We're both higher rate tax payers.

I have a 1 year fixed term savings account in my name only which will pay us around £600 interest next financial year. The interest will be paid into our joint current account. 
Do I need to pay tax on the interest because the £600 is earned in my name only.
Or can we avoid paying tax because the interest will be paid into a joint account so we will have earned £300 interest each.

If I have to pay tax, do I pay on all £600 or just the £100 over my tax allowance.
Thanks so much!

Keep_pedalling

It’s the account that pays the interest that counts, so it is your sole income that tax will be payable on, but just for the £100 the other £500 is taxed at 0%.

teafoil22

That's so helpful, thank you!

Dazed_and_C0nfused

teafoil22 said:

Hi everyone, thanks in advance for your help.

This is the first time my husband and I have enough saved to be at risk of hitting more than £500 interest in one tax year. We're both higher rate tax payers.

I have a 1 year fixed term savings account in my name only which will pay us around £600 interest next financial year. The interest will be paid into our joint current account. 
Do I need to pay tax on the interest because the £600 is earned in my name only.
Or can we avoid paying tax because the interest will be paid into a joint account so we will have earned £300 interest each.

If I have to pay tax, do I pay on all £600 or just the £100 over my tax allowance.
Thanks so much!

It isn't an allowance in the normal sense, it's a 0% tax band.  And the whole £600 is part of your taxable income so if things like High Income Child Benefit Charge or tapered Personal Allowance are a factor for you the overall impact can be more than just the tax payable on the £100 that is taxed above 0%.

teafoil22

@Dazed_and_C0nfused thanks. I don't have anything else (at the moment) that will impact but I will keep this in mind. I suppose it's a nice problem to have but I'm finding it pretty complicated to navigate!

masonic

In terms of navigation, HMRC should deal with this automatically via a future adjustment to your tax code without any action on your part. The only thing you may wish to do is check their calculation when you eventually receive it.

Dazed_and_C0nfused

teafoil22 said:

@Dazed_and_C0nfused thanks. I don't have anything else (at the moment) that will impact but I will keep this in mind. I suppose it's a nice problem to have but I'm finding it pretty complicated to navigate!

If you have very simple tax affairs and receive £600 interest as a higher rate payer then £500 will be taxed at 0% and £100 at 40%.

So total tax liability is £40.

If you have more than the £600 you originally mentioned then the bit extra will all be taxed at 40%.