Savings interest tax query

[MissmyoldLab]

I will shortly be selling my home and may not purchase a new property straight away. I currently earn just under the 40% tax threshold. The monthly interest from the house money will likely be for 40% tax. Is it possible for me to pay the monthly interest into my SIPP to avoid this tax cost? Thanks in advance.

No because you would still have to declare it as receiving interest on your credit balance as this is what it is and the bank will advise HMRC that you have received it as they now provide details to HMRC. Depending on how much you already put into your SIPP you might get some allowance to top up your SIPP contribution.

Of course, although your question is confusing. You would still have to declare the interest on your tax return, but yes payments into your SIPP would be set against tax so it would balance out.

Thanks. So I'd need to complete a self assessment to sort out the tax between interest earned and SIPP payments at year end?

There's a limit on how much you can pay into a SIPP and get tax relief, and many SIPP providers will only allow you to pay in up to that amount.

Isn’t that 60k or income?

Do you have salary sacrifice to your workplace pension as that would be an easier way to reduce your income?
You could put £50k in premium bonds and £20k in an ISA to help reduce tax liability

The return on premium bonds is shit, though.

You don't know what return you're going to get, how can you say that?

I was reading somewhere recently that the prize rate isn't much lower than a good savings rate and the winnings are tax free so although obviously it's random it can be a good return

I pay tax at 45% so I don’t think the return’s been terrible for holding short term cash once I factor in that I’d have to give almost half the interest earned on a fixed rate saver back in tax. It also saves me the admittedly small hassle of putting it on a tax return. OP sounds like she will be in a fairly temporary position of holding cash so may well be similarly placed.

If the alternative is paying 40% tax on interest on cash savings, it's not too bad, as you're grossing up around 3% typical payout rate.