House Sale, Elderly Mum going into rented for 1 year, Tax

[Slipperman]

Hi all,

My Mum is going to (most likely) be going into rented for 12 months after her house sale goes through.

I have looked very briefly into what Tax she'd pay on the proceeds of the sale, or rather money in the Bank earning interest.

Let me suggest £250k that she comes out with, after moving costs etc, so what would she pay HMRC at the end of each January?
It was her only house, no other property involved, lived there 2 years. No 'profit' compared to purchase price. Never had a buy-to-let ever and no renting of rooms out either.
Mum is retired, in her 70's.

Prior to that she and my Dad lived in 2 houses in last 21 years, if that has any bearing on figures.

She has savings, not sure how much, lets say £50k.

So she'd have circa £300k sat in the bank.

Would she get her Personal Allowance of circa £12.5k she'd pay no Tax on, then have to pay 20% Tax on the Interest of the remaining £287,500?

Am I miles out? Just getting her some basic figures together.

Thanks in advance and apologies if this is simple stuff, but I thought I'd go here first.

[Countdown]

Does she have any other income?

General rule of thumb

1. Add together all her income
2. Deduct her personal allowance
3. Deduct her savings allowance
4. She pays 20% tax on the remainder

[foccer]

if it is her main residence at the time of sale, there is no tax to pay in the UK.

[TwigtheWonderkid]

foccer said:

if it is her main residence at the time of sale, there is no tax to pay in the UK.

He's asking about tax on the interest earned on the money she's holding after the sale.

[TwigtheWonderkid]

Countdown said:

Does she have any other income?

General rule of thumb

1. Add together all her income
2. Deduct her personal allowance
3. Deduct her savings allowance
4. She pays 20% tax on the remainder

This.

If she only has state pension, which is under £12570, she'll be able to earn the balance between her pension and £12570, plus another £6000 interest on top.

[Slow.Patrol]

Premium bond winnings are free of tax

[OldSkoolRS]

If as Twig says, that she only has State pension and no other incomes so she is under the £12,570 threshold, then the starter savings rate applies.

She could (for example) put £145,000 into a 1 year fixed savings bond* and receive just under £6k in interest each tax year and not pay tax on that.

Also £20k in this year's ISA if not used, plus another £20k ISA in the new tax year in April.

Maximum into Premium bonds would be another £50k, which would leave £15k from the £250k house sale, which the interest would be taxed at 20%.

Depends on where the other £50k she already has is saved. If it's already in ISAs and she hasn't opened one this tax year, then she'd only be charged tax in the interest on the last £15k. Otherwise it could be taxed on the interest on £65k which could be around £520 (20% of £2,600 interest assuming 4%). Maybe if the £50k is in a poor rate savings account, then the interest could be very small anyway (say £500 on a 1% rate).

It also depends on how this '1 year' falls. If the house sale is imminent, then some of the interest will fall in this tax year and she may have bought the new place before the end of the 2026-2027 tax year, so the interest might be less overall in that tax year.

Also with savings rates dropping, the amount in non-ISA savings could be increased and not exceed £6k interest received in each tax year.

• £145,000 at 4.11% in a fixed 1 year savings bond with Atom as of this evening's rates. However, the FSCS limit is £120,000, so would recommend splitting the £145,000 across more than one bank, also ensure that existing savings don't share the same FSCS licence.

The FSCS protection limit is higher if the funds are from a house sale, but this is time limited (I think for 1 year, but please check).