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Can one actually save hundreds of thousands without problems?
Sensory
Posts: 497 Forumite
I was having a discussion with a group of people regarding savings and tax, and was made aware that a mutual friend of ours was distributing his modest wealth amongst his relatives as he didn't want to "hit the taxman". E.g. He gives his brother £10,000, and when he wants the money back, he receives the same £10,000. He's a higher rate taxpayer through his earnings.
Now, to the best of my knowledge, only savings income is taxed. They responded by saying that having too much money in savings could/would push you into a higher tax band, and again I stressed that only the interest would be taxed at that rate. I never got a clear answer; despite them acknowledging the lack of negative interest, they seemed to be under the impression that having that much money in a savings account would cause problems. I tried to understand their perspective, but they said they weren't accountants.
Surely there's nothing inherently wrong with having say £60,000 in a savings account? FSA protected of course. Giving money to relatives and receiving the same amount back is essentially 100% tax on savings income; never mind the depreciation due to inflation.
Either I'm grossly misinformed, or they didn't fully understand the tax process.
Now, to the best of my knowledge, only savings income is taxed. They responded by saying that having too much money in savings could/would push you into a higher tax band, and again I stressed that only the interest would be taxed at that rate. I never got a clear answer; despite them acknowledging the lack of negative interest, they seemed to be under the impression that having that much money in a savings account would cause problems. I tried to understand their perspective, but they said they weren't accountants.
Surely there's nothing inherently wrong with having say £60,000 in a savings account? FSA protected of course. Giving money to relatives and receiving the same amount back is essentially 100% tax on savings income; never mind the depreciation due to inflation.
Either I'm grossly misinformed, or they didn't fully understand the tax process.
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Comments
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They are basically thickos (although you might want to tell them that in a nicer way
)
Having savings won't take you into higher rate, as you said, it's the income you get that's taxed. The only thing the capital (savings) will stop you receiving is some benefits (JSA for example).0 -
It's also possible to protect large amount using ISAs & NSI products.
I have pretty much all my money either in pensions, ISAs, NSI or offset, so I pay virtually no income tax on savings.
All it takes is some planning to use the allowances.0 -
Maybe you misunderstood the plan. If the one on higher rate tax were to put it in a savings account 40% of the interest would be taxed. If he gave it to somebody on basic rate rate only 20% of it would get taxed leaving them some extra cash to split between them.
Possible downsides include loss of benefits due to savings, spendthrift relatives not giving it back (it is legally theirs once gifted), possible inheritance tax issues etc.0 -
To me, the downsides outwiegh any small benefits. And they are thickos ofr not trying hard enough to shelter the interest from the taxman.0
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Having the actual savings won't take you into higher rate tax payer.
For example, you could have £1mil in a current account paying 0%, it won't make you a higher rate taxpayer.
Of course not, what I'm saying is if you have enough savings the interest would make you a higher rate taxpayer.
Using your own example of £1million in savings, all you'd need to earn would be 5% (difficult just now but historically easy) to make £50K a year interest which would put you into the higher rate bracket even if you didn't work.0 -
Maybe you misunderstood the plan. If the one on higher rate tax were to put it in a savings account 40% of the interest would be taxed. If he gave it to somebody on basic rate rate only 20% of it would get taxed leaving them some extra cash to split between them.
Any interest was/is kept by relatives, which was why the whole scenario seemed completely absurd to me, yet everybody went along with it. One person even said gifting money to a friend/relative counted as tax relief and that the money saved could have outweighed the interest from a savings account.0 -
*Sigh*Of course not, what I'm saying is if you have enough savings the interest would make you a higher rate taxpayer.
Using your own example of £1million in savings, all you'd need to earn would be 5% (difficult just now but historically easy) to make £50K a year interest which would put you into the higher rate bracket even if you didn't work.
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Of course not, what I'm saying is if you have enough savings the interest would make you a higher rate taxpayer.
Using your own example of £1million in savings, all you'd need to earn would be 5% (difficult just now but historically easy) to make £50K a year interest which would put you into the higher rate bracket even if you didn't work.
Of course it would, but it's not to do with just the capital. Your post says "savings could take you into higher rate", which entirely depends on the interest rate associated with it, which will give income.
It needs to be clearly distinguished that capital doesn't make you a higher rate income tax payer, only the income does.0
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