Living off the interest
Discussion
I'm no interest expert but at a rate of 3% per annum your gross income would be around £30,000. The bank or building society would deduct 20% tax on that so you would receive £24,000 into your hand.
However, on the assumption that you have no other income, the £6,000 tax deducted would be excessive as no account of your annual personal tax allowance would be incorporated into the calculation. Your true tax liability on income of £30,000 would be closer to £4,700 so you would need to apply for a tax refund of £1,300 after the end of the tax year - more than likely by filling in a Self Assessment tax return.
If you received £50,000 interest the bank would STILL deduct tax automatically at 20% leaving you with £40,000 into your hand. However, an income of £50,000 puts part of your income into the 40% Higher Rate tax band.
Therefore, the true tax liability on £50,000 would actually be £9,930.
This means that you would have suffered £70 too much and would be entitled to a tax refund of £70.
These are just rough examples.
The good news is that there is never any National Insurance due on interest.
However, on the assumption that you have no other income, the £6,000 tax deducted would be excessive as no account of your annual personal tax allowance would be incorporated into the calculation. Your true tax liability on income of £30,000 would be closer to £4,700 so you would need to apply for a tax refund of £1,300 after the end of the tax year - more than likely by filling in a Self Assessment tax return.
If you received £50,000 interest the bank would STILL deduct tax automatically at 20% leaving you with £40,000 into your hand. However, an income of £50,000 puts part of your income into the 40% Higher Rate tax band.
Therefore, the true tax liability on £50,000 would actually be £9,930.
This means that you would have suffered £70 too much and would be entitled to a tax refund of £70.
These are just rough examples.
The good news is that there is never any National Insurance due on interest.
mccrackenj said:
ringram said:
Also doesnt take into consideration the erosion of your principle over time due to inflation. You will barely net anything in real terms at those interest rates!
But surely most people's principles get eroded over time anyway . . Value of principal can be protected though.
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