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Tax on interest earned.

MikeMA said:
For the first time in several years I will be paying tax on bank account interest. When I was working and on self assessment I had to provide returns and would eventually get a bill for any tax not collected through my PAYE code.

Now I'm retired I I'm no longer on self-assessment, and apparently the banks send interest statements direct to HMRC and I don't have to do anything. What isn't clear - at least I can't find it on the HMRC website - is if I will get a bill for the tax or whether it will be recovered through an adjustment to my tax code. It all seems a bit vague. Does anyone know how it's done?
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£50000 in premium bonds.
 
Mike Reed said:
Yes, for those on 40% tax; more than a few now with fiscal rag! Can't say I've ever been remotely close to that. I suppose the rationale is that if you earn that much, you don't need the same allowance as lower earners.



Yes, but that is applicable to all, regardless of income level At least the 40% is only on income in excess of (?) £50K
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£50000 in premium bonds. Interest free.
 
Ponty said:
For many the interest allowance is £500. Not only do those good folk pay high rate tax, but have half the allowance. Probably another rate hike this week, you don’t need vast sums to earn £500 a year interest, less than £10K now. It’s always the prudent who get shafted. Years of ZIRP, now inflation and tax on interest as rates are beginning to approach ‘normal’ levels.
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£50000 in premium bonds. Winnings are interest free.
 
No it do doesn’t. Make sure you’re maxed out on cash ISA. It’s mad that anything over £1000 or £500 is taxed
 
Spike said:
£50000 in premium bonds.
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Spike said:
£50000 in premium bonds. Interest free.
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Spike said:
£50000 in premium bonds. Winnings are interest free.
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Don't work for NS&I by any chance, Spike?:)

P.B.s are lovely but should, I feel, form only a part of one's portfolio. It's gambling for ultra cautious people and you do need a bit in there to be hopeful of a return. It's £50K per person, so couples can aspire to £100K.

When the gov't needs more funds, instead of whacking out a class-leading i.r. bond, to the chagrin of other lenders, why not up the P.B. and ISA allowances, which haven't moved for the best part of a long time. Eventual tax revenue probably explains that, I guess !
 
No I don’t. It’s been a good return for me over the last three years.
Also excellent if you’re paying 40%.
 
I didn’t say I was mad. I said it’s mad. It’s been same level for 7 years. Personal allowance has been frozen since 2019 until 2026. Inflation has rocketed in this time. Fiscal drag is hammering people. So if you think that’s not mad, good on you. I personally do.
 
£500 tax free earnings on interest for higher rate earners and £1000 tax free earnings on interest for lower rate earners.
 
JTC said:
Missed this. What criteria?
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As @Spike says, if you're a higer-rate taxpayer your tax-free allowance on interest is halved from £1k to £500. Which is taking the piss, frankly - the money in savings earning the interest has already been thumped at the higher rate when you earned it in the first place...
 
Funk said:
the money in savings earning the interest has already been thumped at the higher rate when you earned it in the first place...
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A good point but not necessarily so, as some of that savings money could've been taxed at the lower rate (< £50K????) It's only the excess over the threshold which attracts 40% tax. Otherwise it would be 'orribly retrospective and punishing.
 
Mike Reed said:
A good point but not necessarily so, as some of that savings money could've been taxed at the lower rate (< £50K????) It's only the excess over the threshold which attracts 40% tax. Otherwise it would be 'orribly retrospective and punishing.
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Technically of course you're right - but I prefer my indignation kept simple... :D

Put it this way - I'm more likely to have put the additional higher rate earnings into savings... ;)
 
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