Tax on savings - please help!

[Pablosdog]

How much interest can I earn on my savings each year without paying any tax on it? Is it 1k of interest or 5k? I earn around 10k a year working part time.

I inherited recently and have put the maximum amount of money I can put into an ISA this year and Premium Bonds, but the remaining amount in savings may earn 3-4K in interest each year. I want to avoid being taxed on it if possible. Any help gratefully received!

People seem determined to misunderstand the OP. She's clearly not asking how to avoid tax which she owes. Just trying to understand the various personal allowances - that we all have and all take advantage of to some degree - and the impact that has on the earnings from the money she's inherited. Given that it sounds to be a sizeable inheritance, it must have come with a significant bereavement. Sorry for your loss, @Pablosdog

A pp has said it better than me. But as a low earner salary-wise, you still have your full tax-free personal allowance. An allowance no doubt most full time workers commenting here are benefiting from. You also, as a basic rate tax payer, have and additional £1k personal savings allowance, meaning you can earn that in internet before you need to pay anything. So on £3-4K interest a year, you're unlikely to pay any tax. Not because you're avoiding or evading it. But because there is no tax due.

Terrible typos, sorry. Interest, not internet!

BorgQueen- has the right answer.

You earn under £12570, you can earn 5k in interest (starting savings allowance) and 1k (Personal savings allowance).

If you earn more than £17570, you lose the 5k starting savings allowance but keep the 1k personal allowance.

Between £12570 and £17570, every extra £ you earn in income reduces a £ in your 5k starting allowance.

If you earn over £50,270 (including any interest), the personal allowance drops to £500.

I am not going to talk about 100k plus :).

Pensions you get tax relief on the way in, so apart from the 25% tax free amount, would be taxed as normal income using whatever the current bands are when you retire or draw the pension.

Isa’s are different because you have already paid tax on the money going in and you are allowed to put 20k in a year and when you decide to take this out, it is tax free.

Hope this helps.

Premium bonds are tax free because the 'interest' from those is classed as winnings. You can have up to £50k in your PB account and have the winnings paid directly into your bank account. They are roughly equivalent to interest rates, although it's a prize draw so there's an element of randomness, but over the course of a year or so it generally evens out. An option if you are maxing out your interest-free savings allowance.

Sorry I just saw you already have PB! Will leave comment in case it's of interest to anyone else!

But there's no tax due, so what you're saying is irrelevant with regard to the OP's situation.

It could be worth getting a bit of one-off advice (eg Hargreaves Lansdown) - there's lot of options when you have a bit of cash for the first time including pension, paying off the mortgage, investing S&S, putting money into the ISA each year, children's savings, etc.

And just to echo the majority here, you absolutely should be looking to be tax efficient. I's those with millions using dodgy schemes that border on evading tax that we should be cross about, not situations like this where there are various straight-forward options available that are specifically designed to allow you to make use of tax-free allowances.

They're not "due to pay it" though because as a poster above has said, you can have an income of up to £18,570 before paying tax on a wage of £10,000 leaving up to £8570 of interest. All perfectly legal and moral based on thresholds etc - no need to do any "planning".

By the way, tax planning and tax avoidance is entirely legal. It's tax "evasion" which is illegal and is usually people simply not declaring all their income.

Even "planning" is perfectly moral and legal, i.e. using Parliament sanctioned devices such as ISAs, transfer of income generating assets between spouses, investing in pensions, etc.

No sane person would voluntarily pay more tax than the law requires them to do.

I'd strongly disagree that tax planning is secondary. When tax is 20%, legally avoiding it means a lot more money being invested/reinvested, which can gain investment growth or compound interest etc. Being tax free can make an enormous difference and often makes even mediocre investment returns grow faster than if tax is being paid. Tax on income and especially capital gains is a big issue and has equal, if not greater importance than returns etc.

An IFA would cost a heck of a lot more than the income tax on £4k - even if there were any, which there isn't (as others have explained).

If the OP is preserving money to pay for care for a relative then being cost conscious is likely to be a good idea.

OP, there is lots of advice - for free - on money matters here, and they have various helplines if you need more info.
https://www.moneyhelper.org.uk/en

How on Earth are you surviving on £10k a year OP?

Unlimited contributions to pensions with 40% tax relief 😂
That’s not what the abolition of the lifetime allowance means

the OP’s aim is to maximise returns. Tax planning will be part of that but not the main consideration. You earn more by taking more risk or earn a steady income by taking less, and then you consider taxes.

As someone who manages investments - that’s the conversation I have with my investment managers. What risk do you want to take, how much do you want to earn.
There won’t be a huge number of ways to avoid tax anyway - that’s for the millionaires.

Op I think most of your bases have been covered. You absolutely do not need an IFA to minimise tax on 3-4k of interest!

You are completely entitled to use up your tax free personal allowance, your savings allowances, utilise an ISA and premium bonds and contribute into your pension too. All of these should mean you pay zero additional tax as you have a low income. If posters don’t like this they can petition the government to have these options removed so we all pay more tax.

It may also be financially sensible, depending on your circumstances to put money in your DH name (if you have one), as he will also have some of the same options as you depending on his income.

Anyone can overpay tax if they wish. Why aren’t you doing that? https://advisingfamilies.org/uk/information-portal/managing-money/can-i-pay-more-tax-voluntarily/

I expect you to make a 100% donation of everything you earn asap for the good of the country. If you don’t you’re a cunt