paying tax on savings is a bloody con!

[MrsFrugal]

I have NC for this as I don't like to talk about money. But this has got my back up!

I am very Frugal, we have been saving as we bought a really old house that needs lots and I mean lots of work, I enjoy being savvy with money and move this around for better interest rates etc to maximise it, now I'm not talking millions here we have about 35k, both myself and DH pay the higher tax rate at 40% so the allowance for interest is £500 each before then we have to start paying tax on that! I'm probably just feeling more miffed off about it as hubby got a decent bonus recently and pretty much half of it was swiped straight away. And if we do go over the savings allowance which I will have to keep a close eye on its not going to be by much (£125ish by my calculations at the most), surely the admin fee for HMRC to process this on such a small amount costs more than what they are actually gaining. Anyway I just ranting here, feeling like its all take, take, take at the moments, nice bit of interest rise to try and cancel out a little bit of the bloody mortgage payments and that's then taxed! AIBU?

[DdraigGoch]

@MrsFrugal

@DdraigGoch context

Oh, I read the rest of your post. The point clearly went over your head though.

As others have said. You aren't being taxed on your savings, you are being taxed on the interest. That's income, more or less like any other. If I had my way capital gains and dividends would also be taxed as income.

[Chickenly]

@DdraigGoch

Oh, I read the rest of your post. The point clearly went over your head though.

As others have said. You aren't being taxed on your savings, you are being taxed on the interest. That's income, more or less like any other. If I had my way capital gains and dividends would also be taxed as income.

Dividends are taxed as income.

[Aaron95]

They said 40% tax. 40% tax only applies to earnings above £50k. If their household income is £100k that puts them in the top 3% of housholds.

[friendlycat]

It has always been thus I'm afraid. Hence you need to use tax free wrappers such as your annual ISA allowance and Premium Bonds if you don't want to pay tax on savings interest.

[Penguinsista]

ISA is a tax free envelope

[PassAnotherJumper]

All income should be taxed.

Indirectly earned income should be especially taxed.

[Chickenly]

To be fair, OP also said “I have a few different accounts, one at 5% only a small amount though and the other I'm just going to move to 3% so yes it takes us over that amount - only slightly.” With £35,000 on savings with a small amount at 5% and another at 3%, they’d get nowhere near the tax threshold unless they were higher-rate earners. You’re not wrong about the wording you pointed out though. They’d need an interest rate of over 6% in order to owe any tax on £35,000 savings if they were on a lower income bracket.

[poetryandwine]

@Chickenly I presume that @DdraigGoch means that dividends etc should be taxed at the same rate as wages. The taxation rates on dividends for basic, upper and additional rate tax payers are approximately 8.75%, 33% and 39% respectively - substantially lower than the rates paid on wages

[VickyEadieofThigh]

Not taxing interest on savings would result in the very rich sticking wodges of cash into savings accounts and raking in the interest. Now, that would definitely not be "fair".

[Formerpupil]

I wouldn’t worry about it being a waste of HMRC time and resources OP, minimal effort required on their part here. We have a self assessment system of income tax so the onus is on you to file a tax return declaring the income and to pay the additional tax due. The chances of any tax return you file being looked at by a human employee of HMRC are slim.

[crosspusscrossstitcher]

@PassAnotherJumper

All income should be taxed.

Indirectly earned income should be especially taxed.

I don't understand how they can tax interest on savings.
Where did the savings come from in the most part - income - so you're being taxed on the same income twice.

[latetothefisting]

@Chickenly

To be fair, OP also said “I have a few different accounts, one at 5% only a small amount though and the other I'm just going to move to 3% so yes it takes us over that amount - only slightly.” With £35,000 on savings with a small amount at 5% and another at 3%, they’d get nowhere near the tax threshold unless they were higher-rate earners. You’re not wrong about the wording you pointed out though. They’d need an interest rate of over 6% in order to owe any tax on £35,000 savings if they were on a lower income bracket.

Are you sure about this? Mse says anything over 34,500 on the current top easy access savings rate of 2.9% for basic rate tax payers would start owing tax

www.moneysavingexpert.com/savings/personal-savings-allowance/

[Puckthemagicdragon]

YANBU. The government takes and takes. I am no better off on a 50k salary than I was ten years ago on 30k. Add in kids - what is the point - I could be at home with them all day at the state's expense instead of slogging to work to clear my overdraft.

[PassAnotherJumper]

I don't understand how they can tax interest on savings.
Where did the savings come from in the most part - income - so you're being taxed on the same income twice.

You are not being taxed on the savings. The savings have already been taxed when you earned that money.

However, any interest they earn is taxed. The interest has never been taxed.

[MrsFrugal]

@VickyEadieofThigh

Not taxing interest on savings would result in the very rich sticking wodges of cash into savings accounts and raking in the interest. Now, that would definitely not be "fair".

I do agree with the principle, I just think 500 quid allowance is on the tight side, whereas someone could take in a lodger and earn 7.5k from that without paying tax, I appreciate these are 2 totally different things but equally earnings.

[MrsFrugal]

@latetothefisting

Are you sure about this? Mse says anything over 34,500 on the current top easy access savings rate of 2.9% for basic rate tax payers would start owing tax

www.moneysavingexpert.com/savings/personal-savings-allowance/

I think many people would be surprised its not mega bucks when you have to start considering this a possibility and moving it as others have suggested into tax efficient accounts, many of these are locked in though or a poor rate

[AreOttersJustWetCats]

@MrsFrugal

I do agree with the principle, I just think 500 quid allowance is on the tight side, whereas someone could take in a lodger and earn 7.5k from that without paying tax, I appreciate these are 2 totally different things but equally earnings.

It's not just a £500 allowance though is it? It's a £20k per year ISA contribution allowance (so you could have masses in ISAs after a few years) plus the £500 allowance.

[PassAnotherJumper]

@Puckthemagicdragon

YANBU. The government takes and takes. I am no better off on a 50k salary than I was ten years ago on 30k. Add in kids - what is the point - I could be at home with them all day at the state's expense instead of slogging to work to clear my overdraft.

I guess you have some complicating factors because this statement intrigued me enough to do the maths to see if that would be true of everyone on those salaries at those times.

10 years ago a single person on the simplest form of PAYE, earning £30k would have paid £4379 in tax. Leaving £25,621. Taking into acount BoE inflation figures, that's worth about £32,461 today.

Today someone on £50k would pay £12,225 in tax. Leaving £37,776.

So, in that scenario they'd be about £400 per month (at today's values) better off today on £50k than they were 10 years ago on £30k.

[AreOttersJustWetCats]

@crosspusscrossstitcher

I don't understand how they can tax interest on savings.
Where did the savings come from in the most part - income - so you're being taxed on the same income twice.

Loads of income is double taxed in various ways. What do you think VAT is?

[MrsFrugal]

@PassAnotherJumper

I guess you have some complicating factors because this statement intrigued me enough to do the maths to see if that would be true of everyone on those salaries at those times.

10 years ago a single person on the simplest form of PAYE, earning £30k would have paid £4379 in tax. Leaving £25,621. Taking into acount BoE inflation figures, that's worth about £32,461 today.

Today someone on £50k would pay £12,225 in tax. Leaving £37,776.

So, in that scenario they'd be about £400 per month (at today's values) better off today on £50k than they were 10 years ago on £30k.

that's actually really interesting

[OpportunityKnockss]

I love my S&S ISA, the took out 1k profit last week and used it to pay off a bit of my DC’s mortgage and it’s gone back up by the 1k already.
I did the same thing last month to pay for Christmas.

[PassAnotherJumper]

Thanks. (I am too nerdy for my own good!)

[MrsFrugal]

@OpportunityKnockss

I love my S&S ISA, the took out 1k profit last week and used it to pay off a bit of my DC’s mortgage and it’s gone back up by the 1k already.
I did the same thing last month to pay for Christmas.

I do actually have a S&S ISA but I only put a little in per month I'm not quite ready for large amounts.

[Motelschmotel]

@MrsFrugal

I have a few different accounts, one at 5% only a small amount though and the other I'm just going to move to 3% so yes it takes us over that amount - only slightly. Its depreciating anyway due to inflation which the BOE is putting up to curb spending thus encourage saving - so it seems a bit backwards to me

The Bank of England is “putting up” inflation, is it? How does it do that, then?

😂