Savings in the higher tax band!

MrSafeGaz

Hey!

This year I am going to be entering the realm of the higher tax band. I was just wondering what happens in regards to declaring interest on savings? Is it something I need to do at the end of the year? During the year?

Any linkage or help would be appreciated!

Thanks.

debbie42

You need to declare savings interest (not ISAs, though) on your tax return.

MrSafeGaz

Which gets sent to me? Or?

debbie42

Link here.

gt94sss2

If you receive a tax return, just state the interest on that.

If you don't currently receive a tax return, then after the tax year has finished send a letter to the HMRC stating how much interest you received on savings and ask if you need to fill in a tax return or not.

Depending on the amount of interest concerned, they will decide whether or not to send you a tax return or as this page says:

If you're a higher rate taxpayer you must let your Tax Office know what interest you have received so that they can collect the extra tax due:

• if you normally complete a Self Assessment tax return you'll need to declare your savings income on your return
• if you completed a tax return during the 2006-2007 tax year, but now pay your higher rate tax through PAYE (Pay As You Earn), the extra tax due on your savings will also be collected through PAYE based on the latest information HMRC has
• if you no longer complete tax returns HMRC may send you a Tax Review Form P810, normally issued every three years, to check on your level of savings and other untaxed income, and then adjust your tax code (or ask you to complete a tax return if necessary)
• if you don't normally complete a tax return but have recently moved into the higher rate tax bracket, you must contact your Tax Office and let them know what savings income you receive - they will either ask you to complete a return, or (if you're employed or receiving a pension) may arrange to collect the extra tax due through PAYE and thereafter send you the Tax Review Form P810 to check on your level of savings

Regards
Sunil

MrSafeGaz

Thanks! Out of interest, how would they know if you did not declare it? Random spot checks on people? This is a hypothetical question, I don't intend on committing fraud

Also, by adjusting your tax code aren't they making the assumption that the savings will remain constant throughout the year? I take it you have to apply for a rebate if you suddenly spent all your savings halfway through the year?

jem16

MrSafeGaz wrote: »

Thanks! Out of interest, how would they know if you did not declare it? Random spot checks on people? This is a hypothetical question, I don't intend on committing fraud

The banks tell them as they deduct 20% tax at source.

Also, by adjusting your tax code aren't they making the assumption that the savings will remain constant throughout the year? I take it you have to apply for a rebate if you suddenly spent all your savings halfway through the year?

Yes which is why I prefer to fill out a self assessment form.

MoneyTown

They sent me a letter when they realised I was in the higher band.

It's pretty easy for them to know where you stand via Income Tax returns and National Insurance details. If they wanted to they could also easily see your tied account details via a credit reference agency etc.

Keep above board with HMRC. Nowadays with computer records, not much if anything is secret !

Mikeyorks

MrSafeGaz wrote: »

Thanks! Out of interest, how would they know if you did not declare it?

All 'deposit takers' have to download data relating to interest paid .. to the HMRC data warehouse. So when HMRC collate all that data relating to you .... and apply it to your PAYE record .... they're aware!

There's no clean and concurrent way of handling 40% tax on savings interest. If you complete an SA Return .... you're allowed to have any underpayment of up to £2k 'coded out' ..... so you're playing 'catch up'. Similarly if you complete a P810 (simple single page PAYE return) ..... you finish up with an underpayment for the 1st year and (as you say) an estimated amount coded out.

I just write to them each year and set it out as a P810 and include the Certificates of Interest from all my accounts. Suits me that way, as I have a CITR Savings account on which I can claim a 5% refund of the capital each year .. for 5 years. So they always (net) finish up owing me and the P810 equivalent is the fastest way to get the refund. Could get that coded out ... but that inevitably puts you back into SA .... and it took me ages to escape!