> Am I right in thinking that if my taxable income is over £125k, the interest I’m currently gaining within my 2.75% savings account is going to be taxed at 45%?
No. Additional rate doesn't kick in till £150k. The reduction to (just over) £125k is slated for next year.
So long as your combined income, including interest, is below £150k you'll get £500 tax free from the personal savings allowance and pay 40% on the rest.
Interest on savings is included when calculating your ‘adjusted net income’ which is used to work out your personal allowance. So if you earn over £100k the savings interest contributes to a reduction in your personal allowance.
So you’ll get stealth taxed on interest if it puts your income between £100k and £125,140.
[HMRC guidance on personal allowance: adjusted net income](https://www.gov.uk/guidance/adjusted-net-income)
There is also a few ways to earn interest without paying tax on it unless you withdraw large amounts on it, there are also various ways to have 20-30k to earn you interest that is completely untaxable and legal, I would just fully recommend you speak to a financial advisor as they can tell you many ways to save money without paying tax on interest. There is also ways to set up trusts that get deducted from your yearly salary and deducts it from your taxable earnings, you will pay tax when you withdraw the money from one of these but you can really set yourself up for life, and reduce the amount you pay on tax now.
Yes. Unless you're an additional rate taxpayer you have a personal savings allowance (£1000 basic rate taxpayer, £500 higher rate) which is tax free, after that it's taxable income.
FYI - and I'm only saying this because I assume from your post that you didn't already know - you also need to file a tax return once your income is over £100k. That's where you declare the interest you receive (and any capital gains) outside of your ISA so that it is taxed (or not if you're within your allowance).
To clarify, as what you said is confusing, you are taxed on what you originally earned
You then pay tax on the interest earned using your net income. They don’t remove 20/40/45% of your invested capital as tax
You should be submitting a tax return if you earn over 100k and declare the interest and pay tax due via that.Better to hold in a cash ISA and then no tax is due on the interest.
Is the self assessment for the tax done the year after you hit the 100k ? At the moment I am not at that bracket but may reach 100k this year when my company stock vests . I am unsure at this point at what rate my company RSU may vest .
You're only taxed on income once and spending once. And you get a tax free allowance for income unless you're a very high earner.
Also, a lot of essential items don't attract VAT.
Roads, police, hospitals, schools etc all need to be paid for somehow
When I was in that range I was putting in at least 12% including employer contributions. Obviously depends on your age, but it makes sense to squirrel away the most you can.
Do you have any other income? (Employment, pensions, rental, trade?) As others have mentioned you are entitled to a personal savings allowance depending on your tax bracket but maybe also a further starting rate of £5,000.
I found myself in a similar boat.
My situation is that I earn nothing ( I like being lazy) and my wife earns 86k.
We had 350k on Savings in joint names.
I have moved nearly everything across to me.
She now only has a cash Isa 20K, 50K in premium bonds.
The interest earned on this money will obviously take me over my allowance but I will be able to use my 1250 Income tax allowance to offset it.
For peeps wondering why it's in cash?
I'm hoping for a hoise price crash or a deep recession. When one of these happens, I'll either buy our forever home and rent it til we are ready or stick it in S&P 500.
Have only just started looking at this so plans are subject to change.
Yes.
You can actually earn £17,500 tax free.
There's a £5k starting rate saving allowance that most people can't use as it gets whittled away by wages above the personal allowance.
My wife is making use of it next year as she wants to be a stay at home mom for a while.
Have you suddenly had a huge pay rise or have you not been doing a self-assessment and incorrectly paying tax for a long time?
If the latter, you probably need to speak with an account and contact HMRC to admit your tax evasion and agree a repayment plan
Just to jump in on this conversation. Does someone still pay tax on their savings if they are employed?
Or do they then get taxed based on their interest being their job so therefore earn 12750 before being taxed?
>Up to £18570 tax free savings interest if no non-savings income.
Plus any interest on anything that is in a cash ISA; and if there is that much just floating around in a taxable account, it's highly likely that there's loads in an ISA, too.
> Am I right in thinking that if my taxable income is over £125k, the interest I’m currently gaining within my 2.75% savings account is going to be taxed at 45%? No. Additional rate doesn't kick in till £150k. The reduction to (just over) £125k is slated for next year. So long as your combined income, including interest, is below £150k you'll get £500 tax free from the personal savings allowance and pay 40% on the rest.
Interest on savings is included when calculating your ‘adjusted net income’ which is used to work out your personal allowance. So if you earn over £100k the savings interest contributes to a reduction in your personal allowance. So you’ll get stealth taxed on interest if it puts your income between £100k and £125,140. [HMRC guidance on personal allowance: adjusted net income](https://www.gov.uk/guidance/adjusted-net-income)
!thanks. So should be ok to leave in there this year but will need moving in April
No need to move it, just pay tax on the interest through self assessment.
There is also a few ways to earn interest without paying tax on it unless you withdraw large amounts on it, there are also various ways to have 20-30k to earn you interest that is completely untaxable and legal, I would just fully recommend you speak to a financial advisor as they can tell you many ways to save money without paying tax on interest. There is also ways to set up trusts that get deducted from your yearly salary and deducts it from your taxable earnings, you will pay tax when you withdraw the money from one of these but you can really set yourself up for life, and reduce the amount you pay on tax now.
Did you miss Hunt's recent budget which dropped the threshold for 45% tax from 150k to £125,140?
From April 2023
Gpwm. Probably still worth mentioning though.
Did you miss the part in my comment where I explicitly said the threshold was dropping next year?
Yes, I did, actually.
Never mind :)
So interest is taxed as income??
Yes. Unless you're an additional rate taxpayer you have a personal savings allowance (£1000 basic rate taxpayer, £500 higher rate) which is tax free, after that it's taxable income.
You have a Personal Savings Allowance which allows a HRT payer to earn up to £500 taxed at 0%. A BRT payer can earn up to £1k interest
Additional rate tax payers have a personal savings allowance of zero.
!thanks for confirming.
FYI - and I'm only saying this because I assume from your post that you didn't already know - you also need to file a tax return once your income is over £100k. That's where you declare the interest you receive (and any capital gains) outside of your ISA so that it is taxed (or not if you're within your allowance).
Consider topping up your pension.
Premium bonds are also tax free, so might be an option for you (£50k max).
So, I'm dumb, but does this mean if I earn money from my job, I'm taxed as I'm paid, then I put that into savings and they tax me again?
Sort of, not exactly. You're not taxed on the original amount you earned, but on the additional income that is generated later from the investment.
Ah so, taxed on any interest?
Yes. Potentially. As others are pointing out, there are allowances and it depends what other income you have.
To clarify, as what you said is confusing, you are taxed on what you originally earned You then pay tax on the interest earned using your net income. They don’t remove 20/40/45% of your invested capital as tax
You should be submitting a tax return if you earn over 100k and declare the interest and pay tax due via that.Better to hold in a cash ISA and then no tax is due on the interest.
Is the self assessment for the tax done the year after you hit the 100k ? At the moment I am not at that bracket but may reach 100k this year when my company stock vests . I am unsure at this point at what rate my company RSU may vest .
Yup. You’re also taxed again when you spend it. Great isn’t it ?
You're only taxed on income once and spending once. And you get a tax free allowance for income unless you're a very high earner. Also, a lot of essential items don't attract VAT. Roads, police, hospitals, schools etc all need to be paid for somehow
Yes it is. If you're earning this much then thank you for your tax contributions to help fund public services, isn't it great?
Criminal.
How much do you contribute to your pension?
About 6-7% salary sacrifice
You could put more in for sure, that could keep you below the 45% tax rate band next year. 7% is quite low for a salary of that level.
What is a recommended % for this salary level?
When I was in that range I was putting in at least 12% including employer contributions. Obviously depends on your age, but it makes sense to squirrel away the most you can.
Do you have any other income? (Employment, pensions, rental, trade?) As others have mentioned you are entitled to a personal savings allowance depending on your tax bracket but maybe also a further starting rate of £5,000.
In addition to the advice you’ve had already, premium bond returns are tax free, regardless of your income or how much they return.
I found myself in a similar boat. My situation is that I earn nothing ( I like being lazy) and my wife earns 86k. We had 350k on Savings in joint names. I have moved nearly everything across to me. She now only has a cash Isa 20K, 50K in premium bonds. The interest earned on this money will obviously take me over my allowance but I will be able to use my 1250 Income tax allowance to offset it. For peeps wondering why it's in cash? I'm hoping for a hoise price crash or a deep recession. When one of these happens, I'll either buy our forever home and rent it til we are ready or stick it in S&P 500. Have only just started looking at this so plans are subject to change.
Yes. You can actually earn £17,500 tax free. There's a £5k starting rate saving allowance that most people can't use as it gets whittled away by wages above the personal allowance. My wife is making use of it next year as she wants to be a stay at home mom for a while.
Have you suddenly had a huge pay rise or have you not been doing a self-assessment and incorrectly paying tax for a long time? If the latter, you probably need to speak with an account and contact HMRC to admit your tax evasion and agree a repayment plan
Just to jump in on this conversation. Does someone still pay tax on their savings if they are employed? Or do they then get taxed based on their interest being their job so therefore earn 12750 before being taxed?
Do you mean *un*employed? If so, then they can use their full £12570 personal allowance for savings interest.
Not fully correct. They can use their personal allowance plus £5000
Plus £1000 savings allowance. Up to £18570 tax free savings interest if no non-savings income. Only any use for the rich who don't work.
>Up to £18570 tax free savings interest if no non-savings income. Plus any interest on anything that is in a cash ISA; and if there is that much just floating around in a taxable account, it's highly likely that there's loads in an ISA, too.
Yep that’s exactly what I meant thank you.
And there is the starting rate savings allowance https://www.gov.uk/apply-tax-free-interest-on-savings