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Original poster

How do tax on savings work?

52 replies

Newtom · 14/12/2023 16:31

Forgive my ignorance but have never had enough money for this to be an issue.

If I have 40k in savings. What do I actually pay tax on?
If I put 20k in and isa and 20k in a savings account for example with 6 percent. Would I only pay tax on the 6 percent interest on the savings account ? The isa would be tax free?

What if I save all of the 40k in the 6 percent account. Would I pay tax on it all the interest?

I have a job with basic rate tax. How does it all work?

OP posts:
LIZS · 14/12/2023 18:24

Most pay interest net unless you submit a form asking for gross, ie of you are a non taxpayer

VisionsOfSplendour · 14/12/2023 18:24

Brahumbug · 14/12/2023 17:53

You can have more than £1000 in interest per year but only if you have a very low income of £17570 or less.

There's no limit to how much interest you can earn, I assume you mean tax free and I think youve got that income wrong

VisionsOfSplendour · 14/12/2023 18:25

LIZS · 14/12/2023 18:24

Most pay interest net unless you submit a form asking for gross, ie of you are a non taxpayer

They really don't, there is so much misinformation on this yhread

Interested in this thread?

Then you might like threads about these subjects:

General money Savings & investments
LIZS · 14/12/2023 18:28

I certainly did in the past! How would hmrc know if you are within your 1k allowance? Especially with more than one bank involved.

VisionsOfSplendour · 14/12/2023 18:33

LIZS · 14/12/2023 18:28

I certainly did in the past! How would hmrc know if you are within your 1k allowance? Especially with more than one bank involved.

The banks report interest to hmrc no one's disputing what happened in the past but it's no help to the OP now

fitforflight · 14/12/2023 18:33

LIZS · 14/12/2023 18:28

I certainly did in the past! How would hmrc know if you are within your 1k allowance? Especially with more than one bank involved.

You used to request gross payer status, not it's the norm. 99% of banks pay interest gross.

BMW6 · 14/12/2023 18:34

In the past yes, many years ago! Banks supply info to HMRC so interest over £1000 would be identified and HMRC can then check its been declared for tax.

If not you could be subject to investigation and would have to pay all tax due plus interest and penalties..........

It's your responsibility to declare it.

BrimfulOfMash · 14/12/2023 18:35

Newtom · 14/12/2023 16:43

Thanks
So does the bank automatically take the tax?

No.

You pay no tax on the Interest in an ISA.

As a basic rate tax payer You are allowed to earn £1k in interest tax free. It is an additional £1k tax allowance for savings interest.

If you put £20 in an ISA now and the rest in an easy access high interest account you will pay no tax on the interest this year because you haven’t got the complete tax year in which to earn interest. Then on April 6 transfer enough of the £20k in the savings account to an ISA.

Then you won’t pay any tax on this money.

ShanghaiDiva · 14/12/2023 18:42

LIZS · 14/12/2023 18:24

Most pay interest net unless you submit a form asking for gross, ie of you are a non taxpayer

this is incorrect.

Mindymomo · 14/12/2023 18:42

Tax on my interest is paid from my private pension payments. I get a letter each month from my pension company telling me how much they are stopping. I am not working and aged 62.

Brahumbug · 14/12/2023 18:46

@VisionsOfSplendour
There's no limit to how much interest you can earn, I assume you mean tax free and I think youve got that income wrong

Clearly in the context of the post, I am talking about how much interest you can have tax free, not total interest from all sources. The income is absolutely correct. Please check your facts before criticizing.
https://www.gov.uk/apply-tax-free-interest-on-savings#:~:text=If%20your%20other%20income%20is%20less%20than%20%C2%A317%2C570,for%20savings%20by%20%C2%A31.

Tax on savings interest

You do not pay tax on your savings interest if you're on a low income.

https://www.gov.uk/apply-tax-free-interest-on-savings#:~:text=If%20your%20other%20income%20is%20less%20than%20%C2%A317%2C570,for%20savings%20by%20%C2%A31.

RichardMarxisinnocent · 14/12/2023 18:55

BMW6 · 14/12/2023 18:34

In the past yes, many years ago! Banks supply info to HMRC so interest over £1000 would be identified and HMRC can then check its been declared for tax.

If not you could be subject to investigation and would have to pay all tax due plus interest and penalties..........

It's your responsibility to declare it.

According to the gov.uk link posted you only have to declare it via self assessment if it's more than £10000. Below that, HMRC either adjust your tax code so you pay it via your usual PAYE deduction or write to you to tell you how much you owe.
"If you go over your allowanceYou pay tax on any interest over your allowance at your usual rate of Income Tax.
If you’re employed or get a pension, HMRC will change your tax code so you pay the tax automatically. To decide your tax code, HMRC will estimate how much interest you’ll get in the current year by looking at how much you got the previous year.
If you complete a Self Assessment tax return, report any interest earned on savings there.
You need to register for Self Assessment if your income from savings and investments is over £10,000. Check if you need to send a tax return if you’re not sure.
If you’re not employed, do not get a pension or do not complete Self Assessment, your bank or building society will tell HMRC how much interest you received at the end of the year. HMRC will tell you if you need to pay tax and how to pay it."

Check if you need to send a Self Assessment tax return

Use this tool to find out if you need to send a tax return for the 2022 to 2023 tax year (6 April 2022 to 5 April 2023).

https://www.gov.uk/check-if-you-need-tax-return

movehimintothesun · 14/12/2023 19:03

@RichardMarxisinnocent Hurrah, someone has actually clicked on the link and posted the government issued actual facts rather than just guessing wildly - you're my hero this evening 👍

gocompare · 14/12/2023 20:47

@RichardMarxisinnocent if the interest is over £10,000?

pd339 · 14/12/2023 21:04

Not correct, almost all accounts pay interest gross.

edit: sorry, that was a reply to the incorrect assertions about interest being paid net

cardibach · 14/12/2023 21:16

This has been really helpful to me - thanks @Newtom !
I was going to ask an accountant how it works but @RichardMarxisinnocent’s simple explanation has saved me spending that money. I’m getting way more interest than I thought I would so I’m affected by it. Need to get on top of isa allowances (which I knew about but didn’t really get into)

RichardMarxisinnocent · 14/12/2023 22:36

gocompare · 14/12/2023 20:47

@RichardMarxisinnocent if the interest is over £10,000?

If the interest is more than £10,000 you news to register for self assessment. Below that HMRC will either what you own via PAYE my changing your tax code or they will write and tell you what you owe.

Katharineblum · 14/12/2023 22:56

If you have stocks and shares investments but you don’t withdraw the funds and interest made over the years do you still need to declare it ? I was under the impression it was only if you took some of the money out that you had to let HMRC know….(I inherited some money when my parents died which we subsequently invested, never touched any of it). Appreciate this may be a bit too specialist for MN

Galliano · 14/12/2023 23:07

If this was a real rather than hypothetical question and you need to keep the money as relatively accessible cash you could do £20k premium bonds (tax free) prize fund is 4:75 equivalent I think and 20k cash isa.

HardcoreLadyType · 14/12/2023 23:08

Katharineblum · 14/12/2023 22:56

If you have stocks and shares investments but you don’t withdraw the funds and interest made over the years do you still need to declare it ? I was under the impression it was only if you took some of the money out that you had to let HMRC know….(I inherited some money when my parents died which we subsequently invested, never touched any of it). Appreciate this may be a bit too specialist for MN

If you have an investment, and it makes a capital gain, then that gain is taxable when it is crystallised (ie, when you sell).

So if you buy shares worth £50k, and sell for £70k, the gain of £20k will be taxable.

tuttifuckinfruity · 15/12/2023 03:10

People are really overcomplicating this.

ISA - tax free, no issue.

Savings account - as you are a basic rate taxpayer you can receive £1k in interest tax free. Over £1k per annum in interest, you will pay tax on it at basic rate (20%).

£20k at 6% interest is £1,200 per annum. But, you won't have it in the savings account for a full year if you move it straight into your ISA on 6th April (new tax year). Therefore the interest will be less than £1k, therefore no tax to pay.

HolefreeGrail · 15/12/2023 06:57

@BrimfulOfMash is completely correct. You will pay no tax at all if you follow this advice.
So much rubbish information on this thread.
Please do what @BrimfulOfMash advises.

Zebedee55 · 15/12/2023 07:16

VisionsOfSplendour · 14/12/2023 18:22

Which bank is that?Interest has been paid gross for years

Show quote history

Opened years ago with NatWest.

Brahumbug · 15/12/2023 14:41

Assuming you have an income above £17570, which is most people, then, then an ISA is the way to go.

Week54 · 15/12/2023 14:43

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