Tax Free Interest?

jos22

My wife's only income (for many years) is interest which she is paid gross. In the year 1st Jan/31st Dec 2007 this amounted to £4700 which was credited on 31st December. I am now in the process of moving the capital for a larger interest rate. The interest (gross) from 1st Jan/31st March 2008 is £1000.
These two amounts added together (£5700) exceed her personal allowance for 2007/08. Will tax be due on the difference or will HMRC accept that the period is 15months and pro rata the interest?
Many thanks for any assistance.

CLAPTON

her income for the tax year 2007-08 is the amount paid out in that period...i.e. from 6th april 2007 to 5th april 2008 and nothing to do with when it was 'earned'.

has the 1000 actually been paid out ?

Mikeyorks

jos22 wrote: »

Will tax be due on the difference or will HMRC accept that the period is 15months and pro rata the interest?

As previous post .... tax relates to when the interest is paid ..... not when it 'accrues'.

Also if the change you have made results in gross interest exceeding her personal allowance (£5435 next year?) .... you have to rescind any R85s which are in force. But also bear in mind the 10% tax band still applies (£2320 for 08-09) for savings interest only .... if you outstrip her allowances by a modest amount?

jamesd

For a fairly low risk stock market option you might want to investigate the BlackRock UK Absolute Alpha fund. It has pretty steady performance and returned around 10% last year but it's not guaranteed. The income comes via increases in the capital value and selling a few units and asking for the cash to be paid is how you get an income from it. Because of this even outside a stocks and shares ISA it's effectively tax free until the profit exceeds her capital gains tax allowance of over 9000 a year, which is unlikely.

Also worth investigating corporate bond funds and preference shares inside a stocks and shares ISA. For example NatWest has some preference shares paying around 9%. Note that preference shareholdes are last in line if the company goes bust, so you must consider that there is some risk and should not put all of the money in them and should ideally spread it around.

Using this sort of thing you can probably arrange for both a higher income and tax reduction, without needing to take more than savings account risk for most of the money.