interest/tax on current vs savings accounts

[MintMocha]

I am being given some money as part of a deposit for a flat, and it's being transferred from abroad.

I asked the bank if there was any problems with the giver just sending it to my savings account (thinking money laundering etc and whether I needed to warn the bank in advance it was coming) and she said no, that would all be done at the other end.

But she did say that it would be better to transfer it to my current account, not my savings, because the savings account has a very small bit of interest, which I'd then pay tax on.

At the time I didn't really think about what she said, just that the important point was that it was better to transfer to my current account, but now that I think about it, it doesn't really make sense.

For me to have to pay tax on interest, then I'd acdtually have had to have earned some, so if having the money there for a couple of weeks earned interest, then surely I'd be better off with that, tax or not?

So what other reason might there be that it would be better to have it transferred to a current account, not a savings one? She definitely said it was to do with interest and tax, not any fees from the bank or anything. And that I could transfer it to the savings account if I wanted once it got here. So is it to do with some kind of tax from money abroad? How could interest on that be any different, once it's in a UK account?

Any ideas? As far as I could tell, it wouldn't really matter which account it went to, as in nothing would be wrong with the savings account, just that it would somehow be not as good a deal. But the more I think about it, the less sense it makes! I could go back in and ask, but it's a bit of a trek, so I thought I'd try to work it out first.

She sounds like one of those Mumsnetters who post utter bullshit as if it was fact, when in reality it's something that only applies in limited circumstances, hasn't been the case for decades or is just made up nonsense in their own heads.

As long as the savings account accepts transfers in from other banks/abroad (I assume you've had to provide some sort of internationally compatible account code and it could be that savings accounts are more restrictive than current accounts in this respect, but apparently not) then the current vs savings account for interest/tax aspect is a total red herring, the same rules would apply either way.

We all have an annual allowance for interest received on any money, whether it is in a savings or current account and you can't definitively distinguish between current account money or savings money as it's often the case that current accounts pay more interest than savings accounts, and when they do, some people effectively use them as savings accounts, as in keep money in them that's not part of their day to day income and expenses.

The annual allowance is £1000 for interest received in all bank accounts, whether current or savings, if you're a basic rate tax payer or £500 if you're a higher rate tax payer (don't know if this applies to all earners or if it stops if you're on £100k+ and you start losing personal allowances and paying top rate tax).

At current interest rates, you'd have to have tens of thousands of pounds in an account for a full year or more, to earn more interest than the allowance, and it doesn't sound like that applies anyway and, like you say, even if you do pay tax on some interest, you'll still keep most of it so worth doing.

Was she suggesting the current account because it pays more interest than your savings account? Or was she saying it's better to avoid paying tax by not earning any interest ?

Yes, you're right - it's better to earn interest with tax deducted, than no interest at all. But there's an annual allowance of interest you can receive without being taxed on it, so it's likely you won't be taxed on yours.

Maybe she thinks you would have to complete an annual tax return (you don't) if you received the small amount of interest, and it wouldn't be worth the hassle?

I'm glad it's not just me that thinks it doesn't make sense!

The savings account would earn more interest (practically nothing, but more than actually nothing!!) though with the money in there for a week or two, it wouldn't really earn anything anyway I don't think.

And I doubt I'd be over the annual amount, but in any case, I already complete a tax return. But that's a good point - perhaps that's what she was suggesting, that it's not worth the hassle of having to complete it (she wouldn't know that I already have to).

Maybe I will have to go back and ask again, in case there is something that I really just misunderstood!

But then again - she also said that I could transfer it straight into my savings account myself if I wanted, which kind of negates all those explanations!

So really there must have been some other reason, like money being taxed differently from abroad or something. She absolutely mentioned the interest being different on the two accounts though, and that was why, so I"m still confused.

Maybe she was talking bollocks to cover the fact that she wasn't sure if your savings account would accept a foreign payment and came up with a spurious reason why your current account would be better, because it's a certainty that the CA would accept the payment.

There might be reasons (eg speed of processing if you need to withdraw the money within a few days) but then why not say that?

I've had foreign payments into the savings account before, but not that big, and she might not have known that, so it's a possibility.

I think she was genuinely trying to help, but I'm not sure whether she was actually wrong, or I just misunderstood!