Tax on savings interest

Kim_13

Joint accounts aren't my area of expertise as I've never had one, but it would surely be the mother that would effectively be making a gift of 50% of the money - although that could be quite useful in IHT terms in that as a tenant, she will only be able to leave £325k tax free (plus any inherited allowance from her husband) as the residence nil rate band will no longer apply. If there are other children, she might wish to discuss it with them/consider splitting the money into further accounts with each one to equalise the 'gift' - provided she could trust them with financial matters and it wouldn't upset their own tax positions.

At £9,500 interest, £4,750 of it would be deemed to be yours in a joint account and HMRC will eventually amend your tax code to recover whatever of that is above your PSA - so you would effectively be paying part of your mum's tax bill as a result.

Edited to add: Do double check that you do get the version that pays the interest away when the time comes - NS&I otherwise pay all interest at the end of the term and that would increase the tax bill as there would only be a year's worth of PSA to use against what might be two or three years worth of interest.

BooJewels

I was about to reply earlier and got waylaid, but you've said pretty much what I was going to @Kim_13 - that would be my understanding of joint accounts too - if anything happened to Mum, the contents of that bond would become the other account holders - ie the OP.   Depending on the family/beneficiary dynamics, that might be problematic and might be an arrangement Mum doesn't want to get into for those reasons.  

The GIB, by definition, does pay away monthly interest to your nominated account. 

fuzzzzy

Kim_13 said:

Joint accounts aren't my area of expertise as I've never had one, but it would surely be the mother that would effectively be making a gift of 50% of the money - although that could be quite useful in IHT terms in that as a tenant, she will only be able to leave £325k tax free (plus any inherited allowance from her husband) as the residence nil rate band will no longer apply. If there are other children, she might wish to discuss it with them/consider splitting the money into further accounts with each one to equalise the 'gift' - provided she could trust them with financial matters and it wouldn't upset their own tax positions.

At £9,500 interest, £4,750 of it would be deemed to be yours in a joint account and HMRC will eventually amend your tax code to recover whatever of that is above your PSA - so you would effectively be paying part of your mum's tax bill as a result.

Edited to add: Do double check that you do get the version that pays the interest away when the time comes - NS&I otherwise pay all interest at the end of the term and that would increase the tax bill as there would only be a year's worth of PSA to use against what might be two or three years worth of interest.

I think there is some kind of downsizing provision that makes up for the loss of the RNRB?

goldengoldensky

Thanks everyone for your input.
There is definitely more to consider with a joint account than with an individual account.

Fuzzzzy mentioned that there may be some kind of downsizing provision that makes up for the loss of the RNRB. Does anyone happen to know if this is the case?

Also, as my mother will start to pay a monthly rental soon (as she will no longer be a homeowner), can these rental expenses help reduce the savings interest tax in any way or is this a totally separate thing?

Thanks once again for your help.

DRS1

goldengoldensky said:

Thanks everyone for your input.
There is definitely more to consider with a joint account than with an individual account.

Fuzzzzy mentioned that there may be some kind of downsizing provision that makes up for the loss of the RNRB. Does anyone happen to know if this is the case?

Also, as my mother will start to pay a monthly rental soon (as she will no longer be a homeowner), can these rental expenses help reduce the savings interest in any way or is this a totally separate thing?

Thanks once again for your help.

How downsizing, selling or gifting a home affects the residence nil rate band - GOV.UK

badger09

goldengoldensky said:

Thanks everyone for your input.
There is definitely more to consider with a joint account than with an individual account.

Fuzzzzy mentioned that there may be some kind of downsizing provision that makes up for the loss of the RNRB. Does anyone happen to know if this is the case?

Also, as my mother will start to pay a monthly rental soon (as she will no longer be a homeowner), can these rental expenses help reduce the savings interest tax in any way or is this a totally separate thing?

Thanks once again for your help.

BIB
There is no tax relief, against savings interest or any other income, for rent paid.

goldengoldensky

Thanks badger09 for answering my tax relief question and to DRS1 for the RNRB link.

goldengoldensky

Hello again,

Whilst my mother's property is on the market for sale (with less viewings than we had hoped for so far), and the fact that she moves and starts paying rent on her new rental home at the beginning of March, the idea of renting the property came up (instead of it potentially sitting on the market for sale for many months).

I wondered if there are any advantages to renting the property in terms of tax relief vs selling the house and investing the sale proceeds? It seems that similar to the £1,000 PSA there is a £1,000 "property allowance" (first £1,000 of your income from property rental is tax-free) but after that I assume the rest of the income will be taxed at the same rate as savings interest (20% basic rate in my mother's case).

I have calculated that the monthly income that my mother would make from rental would be similar to the amount of savings interest she would receive each month. However, with property rental, the property value could go up over time as well as the monthly rental amount remaining the same, whereas interest rates for savings will inevitability go down over the next few years. Although a few years of renting the property would mean more wear and tear and possible repair/maintenance work when it comes to selling it so it's swings and roundabouts in the end.

Any comments/opinions on property sale vs rental would be much appreciated, especially if there are additional things that I have not considered or thought about.

THANK YOU

Beddie

Don't even think about renting it out. Read up on the Renters’ Rights Act. Look up the taxation. Then sell it.

dales1

Unless you have a known tenant in mind, please be aware of the tenant from hell. (There are several about).

They stop paying rent, they trash your house, and you cannot get rid of them without waiting months before you can even apply for your courd order. 

I used to rent out a house (and I had no problems). But nowadays I think it's too risky (for me anyway).