Avoiding tax

mdb99jh

I am a student and therefore I don't pay tax. I have £12,000 which I am going to put in both a cash ISA and an instant-access savings account. While the ISA is tax-free anyway, the instant access isn't. How should I go about ensuring that I don't pay tax on my interest earned from the instant access account? It is just that all the interest rates are quoted assuming a 20% rate of tax! Do i need to inform the providor of my tax-free status? I am such a newbie, I don't understand how it all works!

Any help extremely appreciated!!!!!!!!!!

Thanx a million

TimC

mdb99jh wrote:

I am a student and therefore I don't pay tax. I have £12,000 which I am going to put in both a cash ISA and an instant-access savings account. While the ISA is tax-free anyway, the instant access isn't. How should I go about ensuring that I don't pay tax on my interest earned from the instant access account? It is just that all the interest rates are quoted assuming a 20% rate of tax! Do i need to inform the providor of my tax-free status? I am such a newbie, I don't understand how it all works!

Any help extremely appreciated!!!!!!!!!!

Thanx a million

Ask the bank/building soceity for a form R85 - this is a request for them to pay interest gross. It remains your responsibility to declare any taxable income, should any occur.

Out of interest, why bother with an ISA if you are not a tax-payer (unless you expect to become one very soon)? You can get similar rates on deposit and you'll only earn £600 at 5%.

R00STER00

You can get the bank to pay you interest without any tax deducted as long as your income for the tax year is less than your personal allowance. I think you will need fill in an R85 form to get this done but this is very easy.

Just ask your bank and they will sort you out.

R00STER00

TimC wrote:

Out of interest, why bother with an ISA if you are not a tax-payer (unless you expect to become one very soon)? You can get similar rates on deposit and you'll only earn £600 at 5%.

If he/she gets the ISA it will remain tax free income even when they start to earn. I would definately get this and max it out each new tax year with any remaining money, provided I did not need to access it in the near future.

I wish I had £12k when I was a student, lots of beer there ;¬)

dunstonh

Out of interest, why bother with an ISA if you are not a tax-payer (unless you expect to become one very soon)? You can get similar rates on deposit and you'll only earn £600 at 5%.

1 - ISAs do tend to be a little bit better at gross rates (in general) than the defaults.
2 - Just because he is a non taxpayer now, doesnt mean he wont be in the future.
3 - What if tax on savings rules change? ISA doesnt guarantee tax free for life but it is way of at least guaranteeing tax free for a period of time.

mdb99jh

Thanks guys thats brilliant. Presumably when I am no longer a student I can just inform the providor and they will switch me to regular tax status as usual.
Cheers!

deemy2004

Once your total annual gross earnings exceed 4895 (normal personal allowance 05/06) or are likely to do during any tax year then you have to let them know.

telly-addict

deemy2004 wrote:

Once your total annual gross earnings exceed 4895 (normal personal allowance 05/06) or are likely to do during any tax year then you have to let them know.

Exactly - being a student does not automatically make you a non-taxpayer, in the same way that a child isn't always a non-taxpayer.