Trying to work out interest when retired..

ipri

Hi...wil have about £390.000 to put in bank after retireing..£30,000 will be in Isas..( Say @ 5.5%).if the rest..(£360,000) is getting ,say,5.5%/yr....and the personal allowance is £6,000.......at 20% tax.I calc. that We will get about £23226/yr...does this seem right? Ian thanks

purch

does this seem right?

No

£ 390,000 earning 5.5% gets you £ 21,450 gross

ipri

Thanks...The money would be in my wife's name...basic rate payer...£30,000 in isa.= £1650......£360,000 - £6000 (P All.)..leaves £354,000 @ 5.5% £19470 ..less 20%..= £15576..plus..P Allow.= £21,578...plus Isa interest (£1650)...= £23,226.....anyway this is how I do it??...where am I going wrong? Ian

Lokolo

You don't take away your personal allownace. You pay tax on all of it.

cheerfulcat

Personal allowance is how much income you can have before paying tax - you need to subtract it from your income before calculating the tax liability. Your mistake is in adding it as income!

jem16

ipri wrote: »

Thanks...The money would be in my wife's name...basic rate payer...£30,000 in isa.= £1650......£360,000 - £6000 (P All.)..leaves £354,000 @ 5.5% £19470 ..less 20%..= £15576..plus..P Allow.= £21,578...plus Isa interest (£1650)...= £23,226.....anyway this is how I do it??...where am I going wrong? Ian

Is your wife going to be working or not?

ipri

No ..she will be retired...only income will be interest from the money we are discussing. ian

jem16

ipri wrote: »

No ..she will be retired...only income will be interest from the money we are discussing. ian

In which case the savings income is her only income and is treated differently.

£30,000 (ISA) at 5.5% = £1,650 tax-free.

£360,000 at 5.5% = £19,800 gross

£19,800 is therefore your wife's gross income - assuming no other income. Remember it's the interest made from the capital that's the income, not the capital itself.

£19,800 minus personal allowance of £5435 (if under 65) is £14,365

As it's savings income the first £2320 is taxed at 10% = £232

Next £12045 is taxed at 20% = £2409

Total tax is £2641

So £19,800 minus £2641 in tax = £17,159

Total is £17,159 + £1650 = £18,809

By the way are you sure you want to have £360,000 sitting in a bank account? As you are using all the interest as income your capital will be eroding over the years as it's not keeping up with inflation. That in turn will mean your income will also erode.

Perhaps you would be better seeing an IFA to discuss a more suitable investment for the money which would allow you to take an income as well as having growth on the capital.

ipri

Many thanks...this seems more in line with my original working out (I think!)...I used £6000 Personal allowance...I thought this was the new figure aftet April.??.I'm not familiar with the £2320 /10%..saving calc.?

Your right..I'll have to look at some advice re. large amount of money...Thanks again ian.

jem16

ipri wrote: »

Many thanks...this seems more in line with my original working out (I think!)

The idea to use the personal allowance was correct but you used it wrongly. You took it off the capital instead of the interest and then added it back on as if it was extra interest. So you basically gave yourself an extra £6k interest which doesn't exist.

...I used £6000 Personal allowance...I thought this was the new figure aftet April.??.

The new figure doesn't come in till September but will as such be backdated. So you can count it as being £6035.

I'm not familiar with the £2320 /10%..saving calc.?

The 10% band which was abolished for earned income still stays for savings income only.

Your right..I'll have to look at some advice re. large amount of money...Thanks again ian.

Just make sure it's an IFA and not someone from the bank.

ipri

Thanks again...a massive help..ian