More than four million savers will have to pay tax on their interest this year for the first time, just as they finally get a good return on their savings.
Some will have the tax deducted from their monthly income through a change in their tax codes.
Others will have to file a tax return, having never done so before.
Money Mail has been inundated with letters and emails from readers asking for help with savings tax questions.
The number and breadth of the questions reveals how confusing and complicated the savings tax can be.
Questions: We’ve been inundated with letters and emails from readers asking for help with savings tax questions, as millions face a tax bill on their interest for the first time.
Money Mail has a simple solution for this. We call on the Chancellor to increase the personal savings allowance (the amount of interest savers can earn tax-free) from £1,000 to £2,000.
This would help millions of savers avoid getting caught in the tax net and also reduce the administrative nightmare of collecting all those taxes.
Any savings interest earned above your allowance is taxable at your income tax rate of 20, 40 or 45 percent.
Basic rate taxpayers have a personal savings allowance of £1,000, higher rate taxpayers have £500 and additional rate taxpayers have no allowance.
To help overcome the confusion, we’ve recruited Robert Salterdirector of the tax and accounting company Blick Rothenberg, to answer your main questions.
Q: My wife and I have a joint savings account. Which of us will pay taxes on the interest?
Norman H., by email.
TO: HMRC assumes that income earned in joint accounts is split equally. Therefore, each of you would have to pay taxes on your half.
Each of you is entitled to the full personal savings allowance.
Q: I have savings accounts in Sharia-compliant banks. These claim that they do not pay interest. Instead, they say they pay an “expected rate of profit.” Do I still have to pay taxes on the income if it is not technically interest?
Fiona P., by email.
TO: Islamic banks such as Al Rayan Bank and Gatehouse Bank pay profits to savers instead of interest.
This is because Islamic rules prohibit earning interest. However, in practice these banks pay income in the same way as other savings providers.
It will be taxed in the same way as interest on savings in any other savings account.
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Q: I know Individual Savings Accounts (ISAs) are tax-free, but do you have to declare income from Isas on your self-assessment return?
Trevor G, via email.
TO: You can put up to £20,000 each tax year into Isas, where your money is sheltered from tax. They are a great way to save without risking paying taxes on your interest. The stocks and shares version can also be used tax-free.
The income does not need to be reported on your self-assessment tax return.
Q: I have a deputation (similar to a power of attorney) for my 98 year old mother, who resides in a nursing home. She has around £250,000 invested in building society bonds and savings and a state pension of £188.99 a week.
Will I have to register her or myself for a self-assessment tax return to declare her savings interests?
Keith C., via email.
TO: Depending on the assets your mother has, as well as her pension income, you may need to register her for a self-assessment tax return.
Your Provincial Council will not require you to register for a tax return. However, whether you need to register your mother depends on the exact type and nature of savings income you have.
If savings are largely in Isas or Premium Bonds, income from those sources would not be subject to tax.
You will need to review exactly what taxable income your mother receives. If you exceed her allowances (the personal allowance of £12,570, the savings allowance of £1,000 and the dividend allowance of £1,000), you may need to register for a tax return.
To register, go to gov.uk/register-for-self-assessment.
Liability: Some savers will have the tax taken out of their monthly income through a change in their tax codes. Others will have to file a tax return, having never done so before.
Q: I understand that when I earn interest on my savings, my savings providers will inform HMRC and my tax code will be adjusted accordingly.
Does the same apply when I earn dividends on stocks? Will companies tell the treasury?
Derek P., via email.
TO: It is true that banks and building societies will notify HMRC about the interest savers receive.
But there is no equivalent obligation for companies to report dividend payments made by investors.
If you earn dividend income you will need to notify HMRC yourself, if you exceed the tax-free threshold, which is £1,000 for 2023/24 and if you have a combined total income that exceeds the personal tax allowance of £12,570.
If you will receive more than £1,000 in dividends in 2023/24 (or £500 in 2024/25) and wish to avoid filing a tax return, you can notify HMRC of this income so that it can be included in your tax code. . You can contact HMRC in writing or through your personal tax account. Go to: gov.uk/personal-tax-account.
Q: Will HMRC set my tax code for 2024/25 assuming I receive the same amount of savings interest as in 2023/24? If so, what happens if interest rates go down and I earn less interest in 2024/25 than the previous year?
Tom B., via email.
TO: HMRC can estimate your savings income by issuing a new tax code and updating the code when new information is available. However, if HMRC’s estimate is excessively high, you can request an updated tax code based on updated or corrected information. You can do this through your personal tax account.
Campaign: We call on Chancellor Jeremy Hunt to increase the personal savings allowance (the amount of interest savers can earn without paying tax) from £1,000 to £2,000.
Q: I read that I will have to register for a self-assessment tax return if my savings, dividends and investment income exceed £10,000 in a tax year. Is this correct?
John P., by email.
A: HMRC’s default guidance states that you should register for a self-assessment tax return if you have income from savings and investments of more than £10,000 in a tax year.
However, this is a guideline from HMRC rather than an absolute law.
So, for example, a typical taxpayer who had investment income (whether savings or dividends) of, say, £11,500 per year and no other taxable income (so no salary, pensions, rental income etc.) , you wouldn’t actually need to prepare a UK report. tax return.
This is based on your total income in this example still being below the personal tax threshold of £12,570.
Q: I earn much more than my husband. We share a joint bank account. Would we be better off if we had separate accounts?
Penny C., via email.
TO: If you and your husband have different marginal tax rates, it may make sense for your husband to have more joint savings than you do.
For example, if your husband is a basic rate taxpayer, he will have a personal savings allowance of £1,000 and will pay tax on anything over that amount at 20 per cent.
Meanwhile, if you’re a higher-rate taxpayer, your allowance will be half as generous and you’ll pay taxes higher than 40 percent.
However, if you pay the same rate of tax, there is unlikely to be any value in changing your bank account arrangements.
There may be other advantages to having separate savings accounts. For example, some typical savings accounts limit the amount you can deposit each month.
In that case, it would be better for everyone to have separate accounts. The Nationwide Flex Regular Saver pays 8 per cent interest and you can pay up to £200 a month per account.
Check the best cash Isa rates in our savings tables
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