Tax on savings interest

[1nvest]

Don't forget that you may qualify for the starting rate on savings.

https://www.gov.uk/apply-tax-free-interest-on-savings

If your non-savings income is less than £17570, you get £5000 of savings charged at 0%, this is in addition to the £1000 tax exempt amount. Very useful for early retirees!

I haven't worked for >7 years and had minimal annual interest income. This year we sold our house and I put the vast majority of the proceeds into my name in NS&I Direct Saver as my wife is an additional rate taxpayer. I've totted up my 22/23 interest and it comes to £17,345. As it is below the above allowances then I don't think I have any tax due to be paid. However, when completing the 'do I have to file a tax return' online questionnaire by answering 'do you have more that £10,000 of interest income?' with a YES it says I should submit a tax return? Yet, when I look at my dashboard for this year it just says HMRC will calculate your tax and be in touch. Don't want a penalty but don't want to waste everyone's time either by doing so or attempting a phone call which HMRC says I don't qualify to do anyway!

What should I do?

https://www.gov.uk/apply-tax-free-interest-on-savings also indicates that you need to submit a Self Assessment if you receive over £10,000 in interest, as does the questionnaire. So I'd be inclined to do that, as that same web page also details the other factors. Just in case, rather than falling foul of a £100 late submission penalty.

Maybe leave it to the last minute, middle of January 2024 online submission to see if HMRC contacts you to say you don't need to submit one. Once you've done one, you pretty much have to do one every year thereafter. I did try phoning in one year to ask whether I could drop out that year as my income etc. that year was below allowance levels, but didn't get very far with that so just ended up submitting a SA as the easier option. My experience of phoning HMRC is pretty poor, 40 minute type waits to be cut off and having to retry all over again (another 40 minutes), where the recorded announcement suggests not being rude but where the individual is often clearly grouchy. Pretty much incites rudeness in many after they've been left queuing for ages only to get to speak with a depressed individual. I've been chasing HMRC for a 4 figure tax over payment for months now, still unresolved, but have had two over-payments to me demanded to be paid within days, that I paid the same day as receiving the notices.

If you've never done one before, get all of the online self assessment id and password access set up in advance as what I remember of that it can take a while (couple of weeks) for the id to come through.

when I look at my dashboard for this year

... where is that? I'm not familiar with such a dashboard.

[r21442]

HMRC <doh!>

I'm good. Have an ID and know how to do SA. When I was working, every year they'd tell me I didn't have to send a SA yet every year I had circumstances that needed me to send one. Flipping war of attrition. I think your suggestion is good - wait and see what happens after October when they say they will have calculated your tax for the year and take it from there.

The 'dashboard' is just the tiles that show immediately upon signing in with your ID. Amongst the various tiles about NI, SA. PAYE etc. I have one tile that says 21-22 'you paid the right amount of tax and have no more to pay' and another 22-23 'your tax has not been calculated yet'.

[daveh]

I haven't worked for >7 years and had minimal annual interest income. This year we sold our house and I put the vast majority of the proceeds into my name in NS&I Direct Saver as my wife is an additional rate taxpayer. I've totted up my 22/23 interest and it comes to £17,345. As it is below the above allowances then I don't think I have any tax due to be paid. However, when completing the 'do I have to file a tax return' online questionnaire by answering 'do you have more that £10,000 of interest income?' with a YES it says I should submit a tax return? Yet, when I look at my dashboard for this year it just says HMRC will calculate your tax and be in touch. Don't want a penalty but don't want to waste everyone's time either by doing so or attempting a phone call which HMRC says I don't qualify to do anyway!

What should I do?

https://www.gov.uk/apply-tax-free-interest-on-savings also indicates that you need to submit a Self Assessment if you receive over £10,000 in interest, as does the questionnaire. So I'd be inclined to do that, as that same web page also details the other factors. Just in case, rather than falling foul of a £100 late submission penalty.

Maybe leave it to the last minute, middle of January 2024 online submission to see if HMRC contacts you to say you don't need to submit one. Once you've done one, you pretty much have to do one every year thereafter. I did try phoning in one year to ask whether I could drop out that year as my income etc. that year was below allowance levels, but didn't get very far with that so just ended up submitting a SA as the easier option. My experience of phoning HMRC is pretty poor, 40 minute type waits to be cut off and having to retry all over again (another 40 minutes), where the recorded announcement suggests not being rude but where the individual is often clearly grouchy. Pretty much incites rudeness in many after they've been left queuing for ages only to get to speak with a depressed individual. I've been chasing HMRC for a 4 figure tax over payment for months now, still unresolved, but have had two over-payments to me demanded to be paid within days, that I paid the same day as receiving the notices.

If you've never done one before, get all of the online self assessment id and password access set up in advance as what I remember of that it can take a while (couple of weeks) for the id to come through.

when I look at my dashboard for this year

... where is that? I'm not familiar with such a dashboard.

Not so. I have had unexpected income or capital gains on 3 occasions. I told HMRC on each occasion and was asked to complete SA, the first one was paper and I told them at the time the extra income was a one off and they didn't ask me to do it again. The last time for CGT they asked me to do a SA online, I did SA the next 2 years with nothing to pay and they then told me not to bother again.

[1nvest]

With the significant rise in interest rates, many people will now receive savings interest above their personal savings allowance (which is £1,000 for basic rate taxpayers).

What is the mechanism for collecting this tax? Does the individual concerned suddenly need to complete an HMRC self assessment return?

newlyretired

For basic rate taxpayers, even with the recent introduction of dividend taxation, that can still be a relatively more tax efficient alternative to cash deposit interest taxation.

Say someone has a pension income of £12,750 i.e. fills up their tax allowance; And they hold £900,000 of stocks that pay 4% dividends £36,000 gross dividend. You're allowed £1000 of dividends tax free, thereafter for basic rate taxpayers (up to £50,270 total earning/income) dividend taxation is 8.75%, so 8.75% tax on 35K taxable gross dividends = £3062 tax dividend tax.

In total £12,750 pension + £36,000 gross dividends - £3062 dividend taxation, £48,750 gross total, £45,688 net total. Effective 6.28% tax relative to the total gross pension + dividends income.

The same £900,000 in cash deposits, also paying 4%, £36,000, £1000 allowed tax free, remainder £35,000 taxed at 20% = £7000 tax, around £4000 more in overall taxation compared to dividends.