SAVINGS: Will you pay tax on the interest you earn?

Interest rates on savings have been getting better and better this year, and look set to rise even more. The bad news is this could mean you're more likely to pay tax on the interest you earn.

W A T C H N E X T

#savings #interestrates #taxfree

00:00 The personal savings allowance
01:46 Start to Save tax-free allowance
02:29 Cash ISAs tax-free allowance
03:07 Premium Bond tax-free allowance
03:16 What happens when rates rise or you save more?
06:50 Warning: Fixed rate and regular savers
07:45 How to avoid tax on your interest

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A B O U T A N D Y

DISCLAIMER
Content in these videos does not constitute regulated financial advice. Any offers mentioned were correct at the time of filming.

[mlyyra]

Can you make a video explaining how you pay taxes on your savings earnings? Do you need to declare them or does the government tax you automatically?

[anglosaxon]

The best way to save money is to pay down on your mortgage. The interest rate on SRV is around 4.5%. However, you cannot withdraw the money from it

[lolmeercatz]

Something to think about also is that if you do have a large amount in savings accounts and you are moving it around with increasing best rates, rates will likely be up enough next year that the extra you're making pays this years tax for you next year if you are on PAYE and they take it directly. Will be really interesting to see where savings rates go, surely the base rate has to go up considerably at some point right? I'm hearing projections of 18% inflation!! I suppose even at 1.75% that base rate is still pretty low relative to pre 2008 and quantitive easing, who knows!

[margaretenglish]

Gosh Andy, you have explained this so well and it has been a real eyeopener. Much appreciated. Thank you

[lolmeercatz]

great timing literally was googling this yesterday

[matthias]

Question: If someone earns £60k, but pays £10k into their pension to stay a basic rate tax payer, would they have an interest allowance of £500 or £1000? Put another way, can increased pension contributions be used to increase the interest allowance from £500 to £1000?

[minimad]

Thanks for the updates Andy. Nice to see a ready reckoner graph. Not always easy to work out.

[emksteve]

Hi Andy, if exceeding the personal tax allowance is unavoidable/paying tax on some interest is the best option mathematically, how will the tax be calculated and charged (particularly if the interest is coming is from multiple different accounts)? Will HMRC get in touch after the end of the financial year?

[nls]

Thanks for the video, Andy.

As a future reference, It would be great to see how you did the calculations on what you must pay in terms of the personal allowance in the example given at 7:21. I know how you got the £1, 200 but not the £218. If you could do that in all future videos that would be great and helpful like how you show a table to get to the required monetary figure.

Nevertheless, thanks for the info.

[darrentaylor]

Great video Andy, watched loads of videos recently and yours was the most helpful. Many thanks and have a great Christmas

[konyac]

hey Andy, great summary on tax deductions on savings. Just to add, when you go over your tax free limit the % you go over will be deducted from your tax free personal allowance. I found it odd when I 1st read it some time ago.

Also Andy could you tell me if I have £20k in an ISA then added another £20k in the new tax year would the interest be calculated for the full £40k for the next tax cycle?

[saaversteen]

in your opinion how high will savings rates get to? with base rate at 1.75 the best i can see right now for monthly income is about 3.45 fixed over 5 years. with base rates forecast to reach 3 or 3.5 can you see an equivalent doubling in savings rates to 6 or 7 % or even more?
have been keeping an eye on them the past few months and they were creeping up at snails pace but not moved at all recently. even when a base rate rise is announced not a lot seems to happen. oh well only been waiting for a decent return for 15 years...

[davidmurray]

Excellent video, thanks. However you do not ever explain how this tax is collected, how do the government know how much savings someone has? And how do the government collect it? Lots of people have asked this very question but you don’t answer it.

[koolg]

Hi, just wondering how the money that goes over the threshold is collected by hmrc ?

[L.M]

Thank you very much for the very useful video Andy! Just a quick doubt as you mentioned regular savers to he careful, if someone has 2 regular savings account at the same times, both accounts in different banks giving actually pretty decent interest, is that something to be worried?

Also, you are a basic 20%, 1250L tax payer, you can still have your £1000 tax free savings interest earned - can you work this out, just by adding the interest earned in all the non-ISA accounts in the tax year? And only the total exceeds £1000 from interest then you need to worry, don't you?
I have found out from my government gateway account that 3 years ago, they taxed me on interest earned. And I am sure I wasn't near that £1000 allowance. So I guess I can verify this with them?

[janeknight]

If the tax is taken through PAYE most basic rate tax payers will not notice the tax being taken. Does HMRC adjust the code or do they want the money in a lump sum? If there is a choice which route should one take?

[jacobbroughton-venner]

I earn a few hundred over the 50k tax threshold but have a work pension that is deducted from my salary before tax. This brings my taxable income well below the 40% threshold. Do i have a £1k interest allowance or £500. Because the pension contribution is so high I wont pay 40% tax on any earnings until about £56k

[SallyTiff]

What’s the tax implication if I am a house person and if I do earn interest from my savings, say for over 1000. Do I need to pay tax as well? Thanks

[nehpet]

I've never been in a position to earn enough interest to go over the allowance, but I'm wondering how the tax is taken if you do go over. Do you have to declare your interest earnings with a self assessment or is it automatically paid from your account?

[uhuh]

How does the government even find out about your taxes? what if i dont declare the earnings?