income from interest

miyamoto

This is my first post so please bear with me.

Looking to invest £140000 in low risk savings accounts and wish to achieve a regular monthly income from them. Would it be prudent to open up x 4 different accounts and split the money up so that I don,t have more than £36000 in any one account ?
Also need quick access to the capital without any penaltys.
Whose name would we be open up accounts in ? I work and pay Tax , Wife doesn't work therefore doesn't pay tax.
Any advice would be appreciated.

debbie42

On such an amount, if the savings were all in your wife's name then she would be above the tax threshold purely on interest income. It would make sense to split it so that she gets the maximum, yet is still below the threshold.

Have you used your ISA allowances yet? That would shelter some from tax liabilities.

Lokolo

Agreed, but if she planning on going into work or not in the future?

miyamoto

debbie42 wrote: »

On such an amount, if the savings were all in your wife's name then she would be above the tax threshold purely on interest income. It would make sense to split it so that she gets the maximum, yet is still below the threshold.

Have you used your ISA allowances yet? That would shelter some from tax liabilities.

Thanks for reply, What would the threshold be? Or What would the maximum be?
Have not used any ISA's yet.
Basically we are selling our property, investing the the Capital after paying the mortgage off and renting for a while, to see what happens to the market. We were hoping to get a monthly income (i.e interest ) to offset against renting costs (arrrgghhh)

miyamoto

Lokolo wrote: »

Agreed, but if she planning on going into work or not in the future?

My wife has just finished an access course and starts her cert ed qual in september so the answer is no in the short term 6-12 months and hopefully within that time we will have bought another property by then.

JimmyTheWig

Yes, definitely use 4 different accounts. But note that you need 4 different financial institutions, not just 4 different accounts. Normally this means 4 different banks, but once you've decided which you would like to go with, check back here to confirm that they are all different institutions, as sometimes two "different" banks come under the same umbrella.

That said, the £35 protection limit is per person per institution, so if you are keeping some money in your name that wouldn't count towards the same £35k as your wife's money.

Definitely use your ISAs. Put £3600 into a top paying cash ISA for each you and your wife. This is fairly small change for the amount that you are talking about, but significant nonetheless, especially if you are keeping the money in there for some years as you can add to this year after year.

I take the point that putting all the money in your wife's name will mean she will pay tax. But some of that will be at 10% as it is for interest on savings.

If you are a higher rate tax payer, then put all the money (apart from the money in your cash ISA) in your wife's name.

Assuming you are a basic rate tax payer, earning more than £7755, I suggest you do this...
You want your wife to earn £7755. This is her tax free allowance plus her 10% tax on interest band (see http://www.hmrc.gov.uk/rates/it.htm). If she is earning less than this, any tax on interest you are earning is a waste.
Assuming you go for the best interest rates you can earn 6.5% (see http://www.moneysavingexpert.com/savings/savings-accounts-best-interest#topaccounts) you would need £119,308 to achieve this in a year. This should be put into 4 accounts, with £35k in each of the best 3 accounts.
Coupled with £7,200 in cash ISAs, this leaves you with £13,492 that you will have to pay 20% on the interest on. Put this in your name in the best savings account. This is better than putting it in your wife's name in the 4th best savings account.

Having said that, the tax year runs from April to April. It's now June and two and a half months of the tax year have already gone by. So if you put the full balance (less £7200 ISAs) in your wife's name earning 6.5% she'll earn £132,800 x 6.5% x 9.5 / 12 = £6834. This is below the limit I mentioned so for this tax year put all the money in your wife's name. She'll pay 10% tax on the interest above £5435, but that's it. In April, follow the first part of my plan (i.e. put £13k in your name).

Obviously I am assuming that you trust your wife. If not, keep half yourself and suffer the tax.

With my plan for this tax year you would be jointly earning £728 a month until April.

debbie42

miyamoto wrote: »

Thanks for reply, What would the threshold be? Or What would the maximum be?
Have not used any ISA's yet.
Basically we are selling our property, investing the the Capital after paying the mortgage off and renting for a while, to see what happens to the market. We were hoping to get a monthly income (i.e interest ) to offset against renting costs (arrrgghhh)

Savings info here:
http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/ReclaimingTax/DG_10026651

The no-tax threshold is £5435 if you're under 65.

You should both invest in ISAs to reduce any tax liability. This isn't counted as income for either of you. It could shelter savings from tax liabilities long term, if you don't need to use the capital when your wife starts to work. You don't have to mention them on tax returns either, which is a big plus in my book!

One thing that may be obvious, but isn't to some, is that you don't need to restrict yourself to savings accounts that pay monthly interest for comparison purposes.

amiehall

i might just be being stupid but hasn't the taxation threshold increased to 6035??

miyamoto

JimmyTheWig wrote: »

Yes, definitely use 4 different accounts. But note that you need 4 different financial institutions, not just 4 different accounts. Normally this means 4 different banks, but once you've decided which you would like to go with, check back here to confirm that they are all different institutions, as sometimes two "different" banks come under the same umbrella.

That said, the £35 protection limit is per person per institution, so if you are keeping some money in your name that wouldn't count towards the same £35k as your wife's money.

Definitely use your ISAs. Put £3600 into a top paying cash ISA for each you and your wife. This is fairly small change for the amount that you are talking about, but significant nonetheless, especially if you are keeping the money in there for some years as you can add to this year after year.

I take the point that putting all the money in your wife's name will mean she will pay tax. But some of that will be at 10% as it is for interest on savings.

If you are a higher rate tax payer, then put all the money (apart from the money in your cash ISA) in your wife's name.

Assuming you are a basic rate tax payer, earning more than £7755, I suggest you do this...
You want your wife to earn £7755. This is her tax free allowance plus her 10% tax on interest band (see http://www.hmrc.gov.uk/rates/it.htm). If she is earning less than this, any tax on interest you are earning is a waste.
Assuming you go for the best interest rates you can earn 6.5% (see http://www.moneysavingexpert.com/savings/savings-accounts-best-interest#topaccounts) you would need £119,308 to achieve this in a year. This should be put into 4 accounts, with £35k in each of the best 3 accounts.
Coupled with £7,200 in cash ISAs, this leaves you with £13,492 that you will have to pay 20% on the interest on. Put this in your name in the best savings account. This is better than putting it in your wife's name in the 4th best savings account.

Having said that, the tax year runs from April to April. It's now June and two and a half months of the tax year have already gone by. So if you put the full balance (less £7200 ISAs) in your wife's name earning 6.5% she'll earn £132,800 x 6.5% x 9.5 / 12 = £6834. This is below the limit I mentioned so for this tax year put all the money in your wife's name. She'll pay 10% tax on the interest above £5435, but that's it. In April, follow the first part of my plan (i.e. put £13k in your name).

Obviously I am assuming that you trust your wife. If not, keep half yourself and suffer the tax.

With my plan for this tax year you would be jointly earning £728 a month until April.

Thanks very much for this reply, saved me a good days research and time is money, lol

miyamoto

debbie42 wrote: »

Savings info here:
http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/ReclaimingTax/DG_1002665

One thing that may be obvious, but isn't to some, is that you don't need to restrict yourself to savings accounts that pay monthly interest for comparison purposes.

What other vehicles are available to us to obtain a monthly income ?

Hungerdunger

JimmyTheWig wrote: »

She'll pay 10% tax on the interest above £5435, but that's it.

In fact, isn't it even better than that because the Chancellor is increasing the tax-free allowance in September to £6,035 and backdating it to the start of the tax year.

Edit: Apologies to Amiehall who raised this very point in post #8 above, but which I overlooked in my rush to impress everyone with my depth of knowledge :rolleyes: