Non-Working partner - Savings tax allowance

johng_uk

Hi all,

My partner does not currently work as she looks after our new little nipper. What is her tax situation with regards to investing money in high interest accounts?

Many thanks

Aegis

If she's earning less than £5225 she can claim to have her interest paid gross instead of with income tax deducted at source. Immediately increases the actual amount of interest you'll receive by 25%, which is nice. You can do this by requesting an R85 form from your bank.

johng_uk

If she's earning less than £5225 she can claim to have her interest paid gross instead of with income tax deducted at source. Immediately increases the actual amount of interest you'll receive by 25%, which is nice. You can do this by requesting an R85 form from your bank.

Thanks Aegis mate. I take it I have to set an account up simply in her name and request the R85 form from the provider? Also is there a limit to how much can be invested gaining the gross interest? We are looking at having £30k to invest AFTER both using our 07/08 + 08/09 ISA allowances.

debbie42

You can save as much as you like outside an ISA. The only thing to be aware of is that the interest counts towards the income allowance.

Aegis

If you have £30k earning (say) 6.5%, that comes out at £1950 each year. Assuming your wife doesn't earn anything else, this still puts her well below the personal tax allowance threshold, so there shouldn't be a problem with claiming the interest tax-free.

I'm not sure if the account needs to be solely in her name, but I imagine it would certainly simplify matters to do it that way. Otherwise the standard is to basically charge half of the interest to you and half to her, meaning you'd still be paying tax overall. You'd need to fill in another form to have all the interest paid as if it were her tax-rate, I believe, and even then the bank might kick up a fuss!

CLAPTON

if she saves 30k at say 6% then thats 1,800 per annum in interest which is well below her personal allownce of 5225 (rising to 5435 on 6th april)

johng_uk

Ahh I think I have you lol.

If I understand it right, she can earn up to £5435 (from April) per annum, interest free. After this (from £5436 upwards), she would pay the std 20% rate.

Is this correct?

If I opened say.....http://www.alliance-leicester.co.uk/savings/index.asp?page=esaver&ct=savingshome - As I'm scared of Iceland at the moment and missed co-ops 6.62% offer by 1 day (!!), would I request the R85 when I open the account (if postal) or would I have to go "in-store" so to speak?

Finally, does anyone have any other fixed rate savings suggestions for a 1 - 3 year term paying 6.5%+ not from Iceland, India, Azerbijan, Iraq or timbuctoo - lol?

Sobraon

Yes ...but the 10% tax band still applies to Bank and Building Society income!:D See - http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnSavingsAndInvestments/DG_4015739

johng_uk

Yes ...but the 10% tax band still applies to Bank and Building Society income!:D See - http://www.direct.gov.uk/en/MoneyTax...nts/DG_4015739

Would this mean that she could earn £2230 at 10% tax on top of the original £5430? Or is the 10% nullified by the previous nil tax savings?

debbie42

johng_uk wrote: »

Would this mean that she could earn £2230 at 10% tax on top of the original £5430?

I think that's how it works. There's an example on the hmrc web site. It uses the example of someone on a small wage, but the principle should be the same for savings, I think.

johng_uk

I think that's how it works. There's an example on the hmrc web site. It uses the example of someone on a small wage, but the principle should be the same for savings, I think.

Bargain!! TVM for your info.