TAX ON SAVINGS INTEREST: what you need to do

There's a good chance we'll be maxing out our tax-free savings allowances - watch and find out what this means for you and what you can do about it.
R E A D M O R E
Best savings accounts
becleverwithyourcash.com/savi...
How to avoid tax on savings
becleverwithyourcash.com/tax-...
W A T C H N E X T
Tax on savings explained
• SAVINGS: Will you pay ...
#tax #savings #interest
00:00 Intro
00:54 What is your Personal Savings Allowance?
01:46 Will you actually go over your allowance?
04:21 Will you get a pay rise?
05:30 Could tax rules change?
06:09 Are you expecting a windfall?
07:01 Will an ISA earn you more?
10:26 Can you use your ISA allowance for cash?
12:04 Have you enough to make Premium Bonds worth it?
14:36 Do you need this much in savings?
MORE
S U B S C R I B E / @becleverwithyourcash
N E W S L E T T E R - becleverwithyourcash.com/news...
(You'll also get a free Quidco bonus for signing up)
T W I T T E R - / beclevercash
I N S T A G R A M - / becleverwithyourcash
F A C E B O O K C O M M U N I T Y - / 2661970707423383
W E B S I T E - becleverwithyourcash.com
A B O U T A N D Y
Andy Webb is a money blogger and journalist. He runs the award-winning website Be Clever With Your Cash, hosts the Cash Chats podcast, presented Channel 5’s Shop Smart Save Money and writes every month for Reader's Digest. Andy also founded the community ukmoneybloggers.com.
DISCLAIMER
Content in these videos does not constitute regulated financial advice. Any offers mentioned were correct at the time of filming.

[@colinphillipson4830]

As a pensioner and low income earner there is the very little known about the £5000 Starting Savings Allowance. Sadly this rarely gets mentioned and concentrate on the higher earners who actually work. My "working" Income is (my state pension of £10,600). I'm then able to earn (actual work or private pension as income) £1970 extra to the £12570. As a low income earner I'm then also allowed the Starting Savings allowance of £5000 of Interest income, to £17570, then the Personal Allowance of £1000 savings interest, to £18570. If you actually earn extra (not savings income) above the £12570 then the £5000 is reduced proportionally, so if you earn £13570 then the Savings Starting Allowance is £4000.

[@manni192]

Indeed, I also take advantage of the extra £5000 allowance

[@sandrabalmer-bb5xq]

I didn’t know that thank you

[@mccram4205]

i don't work, just plain housewife & mother. my husband earns around 24k yearly. so our savings are all in my name. i still make sure though that the annual interest for each account don't go over 1k, to avoid hassle.

[@manni192]

@@mccram4205 you could earn up to 18k in savings interest tax free

[@michelleelsom6827]

It's not per account, its £1,000 in interest per year from all 17:01 your accounts added together , but maybe you, as a non earner could claim the startings savings allowance? I'm certainly going to look into it for myself.@mccram4205

[@gianlucapagnoni283]

I find appalling that the Government has done nothing to increase the tax limits according to this inflation scenario. It's always the working class and the savers to pick up the bill

[@johnmajor5525]

Not surprised though

[@travellingtom6091]

No. Working class, savers and borrowers are suffering. So that's pretty much everyone.

[@goodvibes5559]

I couldn’t agree more … I was a single mum who had worked for fifteen years paying my taxes and stupidly left my job before Covid so I didn’t get a penny during lockdown and no benefits were available as I had saved up but women who smoke drink get their nails and hair done get all the benefits and rent the system is a joke

[@helenmorris-3768]

Hi Andy. I would also add that one largely unknown bendfit of an ISA is ability to pass this on to spouse upon death. ie If husband / wife dies you inherit snything they had in an ISA and crucially it rdtains its tax free status.

[@colinphillipson4830]

Hi Andy. I'm sure many low income people and pensioners would love an updated video on the £5000 starting savings allowance plus the £1000 PA totalling £6000 savings interst income per tax year being ontop of your working income tax £12570 allowance. I only get my state pension and a small private drawdown pension that keeps me below my allowance but my wife and I do have substantial savings where we take full advantage of this £6000 savings interest income allowance.

[@samantha392]

Yes, I would like a breakdown video like that too.

[@michelleelsom6827]

Yes, that would be really useful, I would like to know if it applies to self employed people earning under the tax free threshold.

[@colinphillipson4830]

@@michelleelsom6827 Yes the starting savings rate does apply to everyone as it's based on your earnings income and tax code.

[@Beazle00]

Remember - it is possible to earn £ 18, 571 in interest before you have to pay tax on interest IF - Interest is your ONLY form of income. (12,571, 5,000+ 1,000).

[@squibys2262]

What's the 5k allowance you included?

[@suresh7436]

Believe it’s low income.

[@colinphillipson4830]

​​@@squibys2262It's the savings starting rate allowance. If you are a low income person and earn up to the £12570 you get that £5k. I'm in this position as a pensioner.

[@kevinsyd2012]

@@squibys2262 it's the Starting Savings Allowance.

[@painfulorwhat8872]

Excellent explanation of how the system works. Didn’t know any of this before watching. Very many thanks.

[@TheJVCMan]

As a high rate tax payer, I decided to go with premium bonds after making the £500 personal savings allowance. It's a gamble that I will come out somewhere near the same or better off than keeping it in a high interest savings account without the tax implications. It took me 3 months to get to the £500 and now I have maxed out the premium bond allowance. I had to wait 1 month before I saw my first payout and it was £50 compared to over £200 in a savings account. So, after month 5 I've earned £550, compared to £1000 in a savings account. I will let it run for the rest of the year and see how it looks.

[@Longfordmuse]

Thank you for explaining everything in simple terms, especially net gain in ISA v non-ISA savings rates 👍

[@williamflinn8606]

Part 2 please!! Discussing how the tax is deductible from your savings. Is it through a self assessment?

[@Ezinma88]

It's still very early days on my financial freedom journey. But, I am really enjoying it so far. Just learning about how to save and where to put my money, seeing the interest come in is really empowering. Thanks for these informative videos.

[@richfish101]

Great video as always. Would have been nice if you had mentioned the starting rate also .. as a freelancer that is experiencing a sh1t year so far my income is very low and so I think I can earn more than £1k interest before being taxed ?

[@benYT248]

Came here to learn about the process of paying tax when you go over the threshold, as the name of the video implied... Will there be a part 2 where you explain how this process works?

[@GoldKingsMan]

My dad put some cash for me in Premium bonds and I won 2 small prizes consecutively.

[@lewbur7926]

All this paying tax on savings freaks me out. I have no idea if I’m going to owe and how I go about paying it if I do!

[@UKGeezer]

If you are on PAYE you don't need to do anything, your tax code will change automatically by HRMC if you owe any tax.

[@mohamedpatel3978]

Great video. I retired in February. I have always paid tax as PAYE. Will I have to start doing self assessments now every year.

[@pamelawalton1255]

Andy Hi just been watch the TV and the bank of England have just voted to keep interest rate for the 3rd time at the same rate, what is the impact for savers where are we best to build savings I'm a low earner just into the new personal tax bracket I've understood about saving in a fixed rate isa and premium bonds should save into an old isa at a low rate until April 2024 or put the extra monthly amount into my pension and then look around for new isa deal I'm a beginner trying to learn about being more conscious around how to use money lots to learn

[@squibys2262]

Might be worth checking interest being payed on uninvested cash in stock broking apps. Not sure if general accounts do it but i noticed my isas have been accruing interest .

[@jondavies5814]

Regarding actually paying tax if you go over your threshold. How does that happen?

[@ZeroRiskAppetite]

I'm no accountant and this is definitely not financial advice, but somthing like wise Interest counts as capital gains so depending on your circumstances might be a way to pay less tax.

[@hedwigwendell-crumb91]

Please tell me more if you don't mind.

[@72087hj]

Please share more if you can.

[@amyye2606]

Hi, Andy or anyone explain the starting rate for saving here.

[@angrydoc4769]

Think if you’ve maxed out your ISAs and premium bonds, popping it into the mortgage gets great returns for higher and additional rate tax payers. You still have £50k of emergency funds in the premium bonds.

[@lawrencer25]

Dont understand your post 🤦🏽‍♂️🤦🏽‍♂️🤦🏽‍♂️🕴🕴🕴

[@Max-ej3po]

What about living abroad? I live abroad in Europe and use my UK savings accounts

[@Ezinma88]

How did you get the multiplier of 1.66 for higher rate payers? Should it not be 1.60?

[@peterchapman5862]

How does it work if you have a joint account? To add we are basic rate tax payers. Would you get £2000 ie £1000 each allowance?

[@OngoGablogian185]

What about as a UK citizen who's non-resident for tax? Is it the case that as long as interest is the only income from the UK, it's not taxed?

[@ceriman5650]

I have fixed deposit for 2 years and the interests will be paid after two years. Which tax year should I file the interests? Can I spread them into two years to minimize my tax? And I started my account in June 2022 and will end in May 2024. Should I divide the interests across three years? Thank you.

[@philipashton1443]

Do you get a savings allowance aswell as a dividend allowance?

[@alainmerle3691]

Suppose I had a lump sum... Or it in a high interest bond.... But went traveling.. Therefore no income... Am I still liable to interest on anything above my tax free allowance?

[@hometechUK]

What about not being a basic rate tax payer ie your not working whats the £5000 tax free saving mean?

[@anthonyferris8912]

But very low interest gilts. Treat then like zero coupon bonds. As market rates plummet, the price of the gilt rises and you scoop up the capital gains tax free.

[@kaxar6954]

Does it count if you have savings account with two different banks? For example if I'm a 20% taxpayer with £8K in one bank and £9 in another bank with 3% interest🙂

[@brianshefford2317]

The reason jeremy hunt wont increase the £1000 personal tax allowance is the same reason he wont increase the inheritance tax threshold is simple it raises billions for the government coffers

[@alexridley7236]

I need clarification regarding the tax free interest on savings, we are both at state pension age, I am taxed at 20% and my wife’s only income is her state pension of £8709.12p per annum, my wife has transferred 10% of her Personal Allowance to me. As I understand we both get a Personal Savings Allowance of up to £1000.00 on savings interest tax free. My question is, as my wife’s income is less than £17570.00p per annum can she still claim the additional £5000.00p tax free on her savings bearing in mind my wife has transferred 10% of her tax free Personal Allowance.

[@malacca1951]

Premium Bond 'winnings' are tax-free, yes! But if you win, say, 50K, as soon as you receive that money you are likely to put it into a savings account where you DO pay tax! Of course, you could simply spend it but most people, I think, would not! Just a thought!

[@edc1569]

nice problem to have

[@ExamTricksTips2023]

What microphone 🎤 you are using?

[@musicloverUK]

Just doing my return; i don't understand why i'm being taxed on my savings interest when it is approx £500. It has been combined with my under £500 self employed earnings. No mention of the £1000 allowance? i'm a normal 20% tax payer.

[@AdyWalter]

I have maximum allowed in premium bonds. If I win, it gets paid into my savings account and will be taxed that way instead. So if you are maxed out in premium bonds you will probably pay tax of some description, especially if you have contributed the max to an ISA.

[@AndyK.1]

The interest on the winnings isn’t much, unless you win big. You not getting taxed on 50k

[@michelleelsom6827]

Your winnings are not classed as taxable income. If you leave them in your savings account, they will earn interest just like any other deposit. If you withdraw your winnings as cash & put it under your mattress you will not pay tax on it, neither will you earn any interest on it in the future.

[@sandrabalmer-bb5xq]

@@michelleelsom6827 I personally don’t have the max in premium bonds and reinvest any winnings but if I did how do you prove to HMRC that that money came from premium bond winnings?

[@anjux3673]

And get a SIPP organised or pay more into it…and get that tax back…at least temporarily.

[@JezzerzWrld]

Great video. Could you please explain how tax is paid on savings? Also how do you calculate how much tax you are due to pay if you are thinking about going over your allowance ? Thanks

[@AndyK.1]

If you are working on paye they will change your tax code.

[@JezzerzWrld]

@@AndyK.1 ok thanks. So it will show up on my payslip once the term is complete?

[@AndyK.1]

@@JezzerzWrld They kind of estimate it. As someone else said. You need to log onto the government gateway to see the details.

[@user-bq1ek2tt8h]

Can someone help me figure this out as I’m struggling. I’m a higher rate tax payer looking to save in a HYSA which pays 5.16%. Im lost at the 9 minute mark of the video 😅

[@jonathanpaske2739]

Andy I'm a basic rate tax payer but will exceed my PSA do I need to fill a self assessment tax form or do the banks building society inform HRMC

[@lawrencer25]

The banks will inform HMRC. The best thing is to call HMRC Help . They are more than Helpful. More importantly you get all the correct information from people who work for HMRC. If I need important advice, I will always call HMRC, even thou I have a accountant. Owning a limited company, the owner is always liable. Better safe than sorry ❤❤

[@nopigletharmed]

If you are payed via PAYE and the interest is less than 10k , then you are not required to contact HMRC. They will take the tax automatically from your wages.

[@fontane007]

I took out the First Direct 7% saver last June, so the interest will come out when it completes in June 2024, as I'm putting in the max allowed each month of £300, I should get about £136 of interest. Would this full amount be part of the 2023/24 £500 tax free (as I'm in the 40% band) or will some of the interest be classed as mostly in the 2022/2023 tax year?

[@avensus-uk]

Interest for this account is paid only on the anniversary, so you’ll receive the £136 in June 24 so it will fall in the 24/25 tax year only.

[@stephaniewilliams7318]

Can anyone link the video for working out what tax bracket I will fall into? I am currently just inside the basic rate I think (on paper, higher rate but pension brings it down) however taking redundancy (approx £80k to be paid end of February) which I will use to pay off a chunk of mortgage in October when sub 2% deal ends. Now I am worried that for year end 23/24, I could even be in the top tax bracket, even though the new job is £43k.

[@michelleelsom6827]

I believe your redundancy lump sum payment is tax free

[@stephaniewilliams7318]

@@michelleelsom6827 £30k is tax free.

[@nobbywhu3943]

My mother is currently not working but has 50k in her saver which she is living off. Interest is over 1k a year, will she pay tax on the interest? As she is currently not earning a wage and hasnt done for over a year.

[@samantha392]

No, she won't pay any tax.

[@minimim89]

How does it work with interest on currency in a British bank? Is it converted to pounds at the end of the tax year? Or the day you receive it? Even if you keep it in the original currency?

[@michelleelsom6827]

That depends when you choose for the interest to be paid. Some pay interest monthly, some pay at the end of 1 year, or at the end of the fix.

[@minimim89]

@@michelleelsom6827 but still, which exchange rate is used?

[@TheActionslaxx]

Like the previous video on this subject you don’t cover how you pay the tax if you go over your PSA.

[@colinphillipson4830]

They tax it off (reduce) your Personal tax code. There is a section on your Government Gateway account that shows how your tax code is made up and one part is untaxed savings income.

[@richfish101]

@@colinphillipson4830 but if you are only ever PAYE then you don’t go near the Gov gateway … so how do they know about any interest you’ve earned ? Or is Big Brother always watching 😁

[@lawrencer25]

Why not just call HMRC ? You can not depend on important personal information from a 3rd party 🤦🏽‍♂️🤦🏽‍♂️🤦🏽‍♂️🤦🏽‍♂️

[@modernsaver-km5ex]

Still a bit unclear regarding tax from interest in a Cash ISA, so if I put in £20000 the interest included at the end of the year will be over £20k, so will that be taxed? Also if I put in another £20k in the following year, what happens to the interest that’s still accruing from the previous years ISA and then I also have interest being earned from the new ISA..

[@roblester1464]

An ISA is basically a ‘tax free wrapper’ any money invested into an ISA AND any interest earned in an ISA is Tax Free. £20,000 is just the limit that YOU can invest each year into an ISA not the maximum you can hold within the ISA. In short any money inside an ISA is exempt from Tax. Just don’t pay in more than £20,000 a year else HMRC will be on the case.

[@colinphillipson4830]

All interest earned in an ISA is tax free, even if the balance goes over the £20k with the interest added. This £20k ISA Allowance per year is cumulative so say in the next tax year you add £20k to the same ISA totalling £40k then again all interest is tax free even with the cumulative interest. However there are some ISA providers that pay the interest to your nominated external account so your balance always stays the same.

[@lawrencer25]

It's called an Tax Free ISA for a reason 😂😂😂

[@davidmeagor2560]

Forget premium bonds. Tn24 and tn25 gov issued gilts via interactive investor and HL are the best option for higher rate tax payers. Just hold to expiry date .

[@edc1569]

Isn't that taxed as income as well?

[@davidmeagor2560]

@@edc1569 gilt CGT is tax free.

[@dietkebab]

Ha. Smart guy, you know the trick. Capital gains on gilts not subject to tax, you only pay tax on the interest. Good idea but maybe too sophisticated for some here.

[@familygarlick179]

As a pensioner. I to was a zero persent tax payer so I could claim the £5000start savings allowance plus the £1000 personal saver allowance Now I will becume a tax payer because the personal tax allowance is frozen and the state pension went up 10% in 23 tax year and this year April 24 is going up 8.5 % so I can not avoid becoming a tax payer and loosing the £5000 start savings allowance .I think there must be quite a number of pensions in the same posion.I think there could be quite a number of peple who have never hurd of the start savings allowance ,I have never hurd you refer to it

[@alanmcdeer539]

At the moment I’m only earning interests from savings, which came from the sale of a property, the interests may be over 20k/year could someone tell me what is my tax free allowance? Many thanks

[@samantha392]

£18,750.

[@alanmcdeer539]

Thank you!

[@damiandbg]

This is so confusing. Can we mix it up, as in if say 10k is in an ISA, but 10k is in a savings accountand combined they made over 1k, is that taxable? Or if we make £999 in savings account and similar in an ISA?

[@kaxar6954]

No money in an ISA is tax.

[@cozza819]

Hello Guys, If I have a maxed out ISA and a high interest savings account for anything extra would that count as going over the personal allowance?

[@michelleelsom6827]

You can disregard interest from your ISA, it doesn't count towards your tax free interest allowance.

[@cozza819]

@@michelleelsom6827Thanks for taking the time to confirm that for me.

[@rachelcairns2093]

If I make £800 in interest from savings, and I also have a few hundred from selling on Vinted, do I still need to pay tax? Not entirely sure about the rules surrounding Vinted / tax

[@michelleelsom6827]

Vinted sales is not money earned as interest, so doesn't come into the equation. That is classed as unearned income &, if a significant amount would go towards your personal allowance, ie what you can earn each year before paying tax.

[@kriswalsh7680]

You can earn £1000 tax free in savings interest. You can also sell on vinted up to £1000 before paying tax. Both are completely separate 👍

[@rachelcairns2093]

Thanks guys

[@ExamTricksTips2023]

UK Government are living in medieval time. It is high time they increase PSA and ISA allowance.

[@gmeadow8079]

UK goverment treat US as their peasantns in meadiveal time. Top thief and frauders in white collars

[@Jackiechandler27]

I’m a higher rate tax payer and I’m earning over £1000 savings interest per month due to the recent sale of a property. My wife is also a higher rate tax payer and we have both reached our maximum ISA allowance for the year. Is there an option to transfer our savings balance to a relative, for example, my mother, who receives no income and has a full personal allowance available, to earn savings interest tax free? Other than the risk of inheritance tax should they transfer it back to me (with interest) within 7 years, is there anything that says this can’t be done.

[@samantha392]

In your position I would put £50k in premium bonds for your wife and yourself. Any wins are tax free. Then just pay the tax on any savings. If your mother passes or needs to go into a home your money will be considered hers and you may lose the lot. She may be fit and healthy at the moment but things can change in flash as it did with my own mother. Went downhill suddenly. You think you will be able to give up work to care but sometimes that just isn't possible depending on their particular needs or issues and your own health. Nursing home fees are £45k per year minimum. Buy some gold or just pay the tax on the interest you earn and remember to live whilst you are alive, spend some of it on making memories. 🙏

[@Jackiechandler27]

@@samantha392 thanks for your super detailed reply. Really appreciate it. And sorry to hear about your mother. I think the advice on premium bonds sounds good and I’ll do it. The amount I’m losing on interest to tax is just too high though. I mainly wanted to check that transferring funds to a trusted relative to utilise their personal allowance is not illegal or classed as evading tax. I understand it comes with its own risks related to the death of that person, however, they are in good health, my father is also still alive and in good health, and they are independently wealthy, therefore the likelihood that they would ever seek state support for later retirement is unlikely.

[@Jackiechandler27]

@@samantha392 also, the amount we are talking about here is less than the £325,000 inheritance tax threshold, therefore, wouldn’t it be entirely safe to transfer this to my mother to earn tax free interest using her personal allowance, then, when she transfers it back to me in future, even if she was to pass within seven years, it wouldn’t be subject to inheritance tax, because it’s less than the threshold?

[@andypandy9931]

If you put money into your pension surely they will tax you on withdrawal after 25% tax free.

[@UKGeezer]

Yes, but you get tax relief when paying into your pension which compounds over time.

[@micswee]

How does the taxman know what interest you've earned?

[@michelleelsom6827]

The banks tell him

[@grahamhassall3408]

If your pension income is low, less than £12570 say £10k and the interest you earn on a large pension pot is £8k then my understanding is you will have as an allowance for personal savings of £1k, savings rate allowance of £5k and the remainder of the personal allowance £2570 in this example. The tax liability in this example would be zero as the total allowance would be £8570 and the interest earned £8k. How would you ensure that no tax is taken? Do you have to advise HMRC and do a self assessment?

[@michelleelsom6827]

Yes, I see it that way too, best double check with HMRC

[@bowls123]

For real.??? They tax people savings too? Tax my fart!

[@peterdunning2952]

they'll be doing that soon

[@michelleelsom6827]

Got to catch it first 😂

[@barneybiggles]

@@michelleelsom6827 I’ll catch it in a ziplock bag and send it to them with a little note inside so they have to open it to read.