Overpayment/offset mortgage advice please

Joe_Bloggs

I looked up how joint interest on savings are typically treated.
Eg £40000 @ 5% for a year.
Interest payable £40000* 0.05 = £2000
This will be split in to 2x £1000 as it is a joint account. Now tax is taken.
For the high rate (40%) tax payer they will end up with
£1000*(1-0.4) =£ 600
For the lower rate (20%) £1000*(1-0.2) =£ 800
The totals then get added together =£1400

The worst case for a high rate tax payer alone is £1200
The best case for a lower rate tax alone payer is £1600

In effect a joint account holders pay the average savings taxation rate of both parties. Eg. (20+40)/2 = 30% in this case.

J_B.

Nick_C_4

Correct - interest on joint accounts is considered to be split equally between the account holders for income tax purposes. You can even get half the interest tax-free if one of the account holders doesn't pay tax - I got my wife to complete an R85 for our joint account, even though we don't leave large amounts in there for long. Every little helps

We have a fixed-rate mortgage at 4.95%, and at the moment we can still get > 5% on our savings (tax-free, it's all the missus' name). This leaves us better off than on an offset, even if interest rates go down, since offsets have higher rates. It relies on my wife's tax-free status, though, to make it worthwhile.

MM2005

Your help is much appreciated.

As someone who has never had savings before and has only recently becomes a higher rate tax payer I know nothing about how the tax is paid on savings. Do I have to inform my bank I am a higher rate payer so the correct amount is taken? I am stil PAYE - I don't complete my own tax-return.

Sorry, that this is getting away from my original question(s).

Joe_Bloggs

It is quite natural for one question to run into another and cross an imaginary boundary. My answer is, I don't know and you will have to ask 'them' regarding their treatment of your taxation situation. The R85 form should clear up all possible outcomes. Try downloading it to see where you stand.
J_B. ( No help but honest).
Edit here:-
Post back with what you have found out and then we can all learn.

MM2005

Just did a search for the R85 form and it seems to be for non-tax payers!