Help me understand tax on savings please

[timetogetlost]

DH has been made redundant and has a sum to live off for now. I am afraid he will get taxed on it, but am struggling to understand what to do for the best. Also, do we need to inform anyone, such as DWP or our mortgage company?
Thanks for any advice.

You only get taxed on the interest and only if it’s more than 1000 a year.

No need to inform anyone

Thank you very much.

You can put 20k each into an ISA and there's no tax on interest. You can repeat in April. Premium bond prizes are exempt from tax, you can put 50k each into them. That's 180k sorted!

No need to inform anyone.

No tax to pay unless you are earning more than £1000 in interest. If you put it in an ISA (can invest up to £20K per tax year) any tax you earn on it won't count towards the £1000.

I think the ISA annual allowance has been reduced to £12k in the budget …

Not yet - think it’s April 27

Not yet

Not until April 2027 and only the amount that can be put in a cash ISA. You can still invest £20K for this tax year and the next tax year. And after that you can still invest £20K, but only £12K in a cash ISA The other £8K would need to be in something like a stocks and shares ISA.

If only it were £180k!

Will having a lump sum affect any benefits you might be claiming?

We don't claim anything. Very average earners. I bring home a bit more than he did.

Good point though, actually. I will need to check the tax free childcare. We don't need it while he is off work, though. Maybe I need to notify them?

If you aren't working you can earn more than £1k in interest a year before tax as you can use the interest as your tax allowance of £12k or whatever it is before you start paying tax.

I was made redundant in Feb and we topped up our child free tax account before we had to reconfirm details and we have been able to use this for ad-hoc days where we have needed wrap around care

You might want to switch the child benefit into his name as this will give NI contributions until the children are 12.

If you are married and you are a lower rate tax payer you can have some of his tax free allowance transferred over to you

Great advice, thank you

£18,750 can be earned tax free from interest

£12,570 personal allowance + £5,000 starter allowance + £1,000 savings allowance

https://www.moneysavingexpert.com/savings/tax-free-savings/

Thanks for this!

He should sign on for JSA as made redundant. It may be hardly anything as your household has an income plus they would ask if you have over I think it’s 16k but it would cover his national insurance contributions.