Tax on interest on cash savings

[Rufus Stone]

These are getting worthwhile again now.

I am aware that individuals have a tax free allowance of £1,000 if a basic rate tax payer, and £500 if a higher rate tax payer. But what happens if the interest itself takes you over the threshold?

Say salary £48,000, interest £4,000. Is £1,000 or £500 tax free?

[fat80b]

I think if you are over the threshold, you get the reduced amount as the interest ends up on the income bit of the tax return.

Either way, if you are well over, you are going to have to tell hmrc anyway and the tax return form does the calculation for you.

[NickXX]

Remember your ISA allowance if you've not already filled it.

[Rufus Stone]

NickXX said:

Remember your ISA allowance if you've not already filled it.

Already have.

[Eric Mc]

Rufus Stone said:

These are getting worthwhile again now.

I am aware that individuals have a tax free allowance of £1,000 if a basic rate tax payer, and £500 if a higher rate tax payer. But what happens if the interest itself takes you over the threshold?

Say salary £48,000, interest £4,000. Is £1,000 or £500 tax free?

£1,000 is tax free.

The Interest Allowance relates to the interest only. It's in addition to the £12,570 personal tax allowance.

[Rufus Stone]

Eric Mc said:

£1,000 is tax free.

The Interest Allowance relates to the interest only. It's in addition to the £12,570 personal tax allowance.

Excellent, thanks.

[Benjy911]

To jump off the back of this rather than creating another thread, am I correct in assuming if you're only income is interest from savings, you can earn up to 17,570 (12,570 personal allowance + 5,000 savings allowance)?

[Chipstick]

NickXX said:

Remember your ISA allowance if you've not already filled it.

Is there a sweet spot for a basic rate payer who wants instant access to cash, where it perhaps works out better to be taxed on the savings account interest compared to the lower interest rates you tend to see in ISAs?

Edited by Chipstick on Thursday 13th July 14:03

[KenC]

Benjy911 said:

To jump off the back of this rather than creating another thread, am I correct in assuming if you're only income is interest from savings, you can earn up to 17,570 (12,570 personal allowance + 5,000 savings allowance)?

£18,570 as you also get the £1,000.

[GT4P]

KenC said:

£18,570 as you also get the £1,000.

On the back of that if say you had an income or pension of £15k then £3570 is tax free and so on

[OldSkoolRS]

GT4P said:

KenC said:

£18,570 as you also get the £1,000.

On the back of that if say you had an income or pension of £15k then £3570 is tax free and so on

An example is given on the Gov website:

https://www.gov.uk/apply-tax-free-interest-on-savi...

Also explained here:

https://www.moneysavingexpert.com/savings/tax-free...

[JagYouAre]

Chipstick said:

Is there a sweet spot for a basic rate payer who wants instant access to cash, where it perhaps works out better to be taxed on the savings account interest compared to the lower interest rates you tend to see in ISAs?

Edited by Chipstick on Thursday 13th July 14:03

I had a quick look at money saving expert and the best easy access ISA rates (around 4%ish) are not that far behind the best easy access savings (around 4.5%ish), so on that basis and based on my very quick back of a fag packet calculations, you're already slightly better off putting the additional savings over the £1000 threshold into the ISA, than you are paying the 20% tax.

E.g. You have £42,000 cash. c. £22,000 will earn around £1,000 tax free at 4.5%. If you have the whole lot in savings, interest is £1,890, tax on the £890 is £178, net is £1,712. If you put the additional £20k in the ISA at 4% instead it's £1,000 plus £800, net £1,800. These are obviously very simplistic figures, but even putting £1,000 in the ISA after maxing your interest allowance rather than paying the tax would see you £12 better off.

I think the difference in rates would have to be quite a bit bigger (over 1%) before it would be worth paying the tax.

[Rufus Stone]

You can get 6% now on cash if you fix for at least one year. Covered by fscs.