Tax on savings

[LapinDeBois]

Getting myself a bit confused about tax on savings. I know that generally savings accounts automatically deduct 20% tax from interest paid on the money in your account (except ISAs etc). But what are the rules when one of you works and one of you doesn't? DH works full time but I'm a SAHM, so I don't have any income. If I have a savings account wholly in my name, would that mean I don't have to pay tax on the interest, even if the money going into the account has been earned by DH ? I'm not trying to pull a fast one here, I'm just genuinely confused!

Yes that's correct. You would not have to pay tax on the savings in your name. Your husband has already paid tax on his earnings.

That's what's so galling about tax on savings if you work. You pay tax on the earnings then you pay more on any savings you make from your earnings

You would only have to pay tax on the savings once the interest goes above the personal allowance. In the same way as children's accounts can be declared for a non taxpayer, you can sign a form and the interest won't be deducted at source.

Ok, thank you very much. Does everyone with a non-working partner already do this, and I've only just cottoned on?!?! It means we can put our savings in a First Direct savings account earning 6% tax free, rather than our current joint ISA that pays us a measly 1%.

Why do you have a joint ISA and why one which offers only 1%?! First off, I would suggest you have an ISA each so you can maximise the ?tax free? option. Nationwide have an easy access one at 2.5%. Most banks/building societies also offer a fixed rate at a higher percentage for current account customers too.

However, yes, if First Direct offer one at 6% then you could earn this interest free up to your personal allowance amount (9k-ish).

Was just looking at the First Direct account; don?t forget to diarise for 12 month's time to move the money to somewhere else.

Simple answer, because I'm a bit rubbish when it comes to banking (and DH is worse!). Sorry I'm wrong about the ISAs, though - we do have one each (I misremembered about it being a joint one). As for low interest rates, it's the sheer hassle of moving money around all the time; the ones we had were quite good when we opened them but the rates have been going down and down. I don't mind doing a bit of research and putting the time in, but DH would do anything for an easy life. I need to kick him up the bum, I think! Thanks for the Nationwide recommendation - I'll look into it.

Sorry, another question. I've just realised that if I open the First Direct savings account it has to be in a joint name (because the current account's in a joint name). Am I right in thinking I should be able to claim 50% of the tax back because the money's half mine?

That's what's so galling about tax on savings if you work. You pay tax on the earnings then you pay more on any savings you make from your earnings

Err, not quite selba.

You only pay tax on any interest received. Not the savings themselves that only happens when you die

Yes, your share would be free. Would you not be able to put it all in your name? (I appreciate that your husband may not want to do this)

The form R85 is what you need to fill in and give to the bank to get interest paid to you tax-free.

No, my husband trusts me (mwah ha ha ha!!), but the 6% rate is only offered when it's linked to your current account with First Direct, and if the current account is joint then the savings account has to be joint also.

Fair enough :) I suppose getting half the tax back is better than nothing. Please bear in mind that if your husband is a higher rate taxpayer then he has an additional tax liability on his share of interest income.

That's a good point, actually. He is a higher rate taxpayer. We earn piss all interest at the moment, but hopefully that will change! But how are you supposed to actually pay the higher rate interest? Whenever DH has contacted HMRC (he occasionally earns a tiny bit of self-employment income over and above his salary, so phones to let them know) they always seem desperate for him not to do a self assessment.

Thingumybob, yes that's what I said

i did not Mean you pay again on the amount saved , only on the interest, apologies if any confusion

Im a higher rate taxpayer and would never risk PUTING all savings in dhs name

The easiest way to get the tax adjusted is through his tax code. You need to estimate how much his share of interest is in a tax year and ask HMRC to adjust the tax code. This will mean he will pay a bit more tax through his employment and will therefore cover the underpaid tax on savings.

Ok, thanks riksti. This money business is v complicated. I was thinking that an ISA must be best, but the very best Cash ISA rates I've found are 3% max, and if my maths is correct (doubtful!) then I'm better off with a 6% savings rate even if I pay 40% tax on the whole lot. Is that right??

Looking at it simply yes. 60% (which is what you'd be keeping of the total interest if you paid tax at 40%) of 6% is more than 3%. Obviously you have to make sure you understand what the terms are for getting that 6% interest.