Tax on Building Socitey Interest.
Discussion
Hello,
I wonder if anyone can help me with a question regarding tax on interest?
I need to transfer a a couple of building society accounts (from a deceased relative) to their surviving partner. The interest from these accounts (plus from the partners accounts) was paid into a joint account to pay household bills etc.
Should I be aware of any tax limits on the amount of interest paid into the joint account? As far as I can see, the total interest going into the joint account will remain the same, it's just that all accounts will now be in the surviving partners name.
Thanks a lot in advance.
I wonder if anyone can help me with a question regarding tax on interest?
I need to transfer a a couple of building society accounts (from a deceased relative) to their surviving partner. The interest from these accounts (plus from the partners accounts) was paid into a joint account to pay household bills etc.
Should I be aware of any tax limits on the amount of interest paid into the joint account? As far as I can see, the total interest going into the joint account will remain the same, it's just that all accounts will now be in the surviving partners name.
Thanks a lot in advance.
The normal tax treatment of interest received on savings accounts (bank or building society - it doesn't matter which) is that the bank deducts tax at 20% on the interest BEFORE it is credited into the account.
So, if an account earned £100.00 interest in a given tax year - £80.00 would be banked into the account and the bank/building society would pay £20.00 directly to HMRC.
If the taxpayer is a "Basic Rate Taxpayer" (i.e. they don't earn enough income during the tax year to be liable for Higher Rate (40%) tax, then they don't need to do anything. HMRC already have the tax due on the interest.
If the taxpayer IS a Higher Rate Taxpayer, they are supposed to complete a Self Assessment tax return so that they can pay the extra tax due on the interest.
If the individual is a non-taxpayer (i.e. their total income for the year is less than £8,105 (2012/13), then they will have overpaid tax on the interest and will be due a refund of the tax taken out of the interest by the bank. The individual may need to submit a tax return to get the tax refunded.
In the case of jointly held interest bearing accounts, then the two individuals may have differing tax situations. One could be a higher rate taxpayer and the other could be a non-taxpayer, for instance. So they would each have to sort out what to do based on their personal circumstances.
In the case of a joint account becoming a solely owned account, the interest that is being credited to the account becomes solely that of the person who's name the account is held.
How they account for this interest from a tax point of view will depend on whether they are a Basic Rate Taxpayer, a Higher Rate Taxpayer or a non-taxpayer as outlined above.
So, if an account earned £100.00 interest in a given tax year - £80.00 would be banked into the account and the bank/building society would pay £20.00 directly to HMRC.
If the taxpayer is a "Basic Rate Taxpayer" (i.e. they don't earn enough income during the tax year to be liable for Higher Rate (40%) tax, then they don't need to do anything. HMRC already have the tax due on the interest.
If the taxpayer IS a Higher Rate Taxpayer, they are supposed to complete a Self Assessment tax return so that they can pay the extra tax due on the interest.
If the individual is a non-taxpayer (i.e. their total income for the year is less than £8,105 (2012/13), then they will have overpaid tax on the interest and will be due a refund of the tax taken out of the interest by the bank. The individual may need to submit a tax return to get the tax refunded.
In the case of jointly held interest bearing accounts, then the two individuals may have differing tax situations. One could be a higher rate taxpayer and the other could be a non-taxpayer, for instance. So they would each have to sort out what to do based on their personal circumstances.
In the case of a joint account becoming a solely owned account, the interest that is being credited to the account becomes solely that of the person who's name the account is held.
How they account for this interest from a tax point of view will depend on whether they are a Basic Rate Taxpayer, a Higher Rate Taxpayer or a non-taxpayer as outlined above.
Eric Mc said:
The normal tax treatment of interest received on savings accounts (bank or building society - it doesn't matter which) is that the bank deducts tax at 20% on the interest BEFORE it is credited into the account.
So, if an account earned £100.00 interest in a given tax year - £80.00 would be banked into the account and the bank/building society would pay £20.00 directly to HMRC.
If the taxpayer is a "Basic Rate Taxpayer" (i.e. they don't earn enough income during the tax year to be liable for Higher Rate (40%) tax, then they don't need to do anything. HMRC already have the tax due on the interest.
If the taxpayer IS a Higher Rate Taxpayer, they are supposed to complete a Self Assessment tax return so that they can pay the extra tax due on the interest.
If the individual is a non-taxpayer (i.e. their total income for the year is less than £8,105 (2012/13), then they will have overpaid tax on the interest and will be due a refund of the tax taken out of the interest by the bank. The individual may need to submit a tax return to get the tax refunded.
In the case of jointly held interest bearing accounts, then the two individuals may have differing tax situations. One could be a higher rate taxpayer and the other could be a non-taxpayer, for instance. So they would each have to sort out what to do based on their personal circumstances.
In the case of a joint account becoming a solely owned account, the interest that is being credited to the account becomes solely that of the person who's name the account is held.
How they account for this interest from a tax point of view will depend on whether they are a Basic Rate Taxpayer, a Higher Rate Taxpayer or a non-taxpayer as outlined above.
Thanks Eric - concise as ever.So, if an account earned £100.00 interest in a given tax year - £80.00 would be banked into the account and the bank/building society would pay £20.00 directly to HMRC.
If the taxpayer is a "Basic Rate Taxpayer" (i.e. they don't earn enough income during the tax year to be liable for Higher Rate (40%) tax, then they don't need to do anything. HMRC already have the tax due on the interest.
If the taxpayer IS a Higher Rate Taxpayer, they are supposed to complete a Self Assessment tax return so that they can pay the extra tax due on the interest.
If the individual is a non-taxpayer (i.e. their total income for the year is less than £8,105 (2012/13), then they will have overpaid tax on the interest and will be due a refund of the tax taken out of the interest by the bank. The individual may need to submit a tax return to get the tax refunded.
In the case of jointly held interest bearing accounts, then the two individuals may have differing tax situations. One could be a higher rate taxpayer and the other could be a non-taxpayer, for instance. So they would each have to sort out what to do based on their personal circumstances.
In the case of a joint account becoming a solely owned account, the interest that is being credited to the account becomes solely that of the person who's name the account is held.
How they account for this interest from a tax point of view will depend on whether they are a Basic Rate Taxpayer, a Higher Rate Taxpayer or a non-taxpayer as outlined above.
I'm guessing that since the only income for the remaining partner is a state pension and the interest from the savings, that they might be owed some tax. Could you tell me the income limits that define the tax brackets?
Thanks.
2012/13
"Normal" people start paying Income Tax when their income level goes over £8,105.
People aged between 65 and 74 start paying tax at £10,500
Over 75s start paying tax at £10,660
If an older person's annual income exceeds £25,400, they lose 50p of the extra age related additional allowance for every £1 over £25,400. This means that by the time their income reaches £30,290, they'll be back down to allowances of £8,105 (£30,510 if over 75).
2013/14
The normal personal tax allowance for next tax year is £9,440. The £10,500 and the £10,660 levels for older tax payers remain the same and will not be increasing any more. In fact, the plan is that by 2014/15 all taxpayers will have a tax allowance of £10,000 and the special extra allowances for older people will cease to exist.
"Normal" people start paying Income Tax when their income level goes over £8,105.
People aged between 65 and 74 start paying tax at £10,500
Over 75s start paying tax at £10,660
If an older person's annual income exceeds £25,400, they lose 50p of the extra age related additional allowance for every £1 over £25,400. This means that by the time their income reaches £30,290, they'll be back down to allowances of £8,105 (£30,510 if over 75).
2013/14
The normal personal tax allowance for next tax year is £9,440. The £10,500 and the £10,660 levels for older tax payers remain the same and will not be increasing any more. In fact, the plan is that by 2014/15 all taxpayers will have a tax allowance of £10,000 and the special extra allowances for older people will cease to exist.
Eric Mc said:
2012/13
"Normal" people start paying Income Tax when their income level goes over £8,105.
People aged between 65 and 74 start paying tax at £10,500
Over 75s start paying tax at £10,660
If an older person's annual income exceeds £25,400, they lose 50p of the extra age related additional allowance for every £1 over £25,400. This means that by the time their income reaches £30,290, they'll be back down to allowances of £8,105 (£30,510 if over 75).
2013/14
The normal personal tax allowance for next tax year is £9,440. The £10,500 and the £10,660 levels for older tax payers remain the same and will not be increasing any more. In fact, the plan is that by 2014/15 all taxpayers will have a tax allowance of £10,000 and the special extra allowances for older people will cease to exist.
I think that covers it."Normal" people start paying Income Tax when their income level goes over £8,105.
People aged between 65 and 74 start paying tax at £10,500
Over 75s start paying tax at £10,660
If an older person's annual income exceeds £25,400, they lose 50p of the extra age related additional allowance for every £1 over £25,400. This means that by the time their income reaches £30,290, they'll be back down to allowances of £8,105 (£30,510 if over 75).
2013/14
The normal personal tax allowance for next tax year is £9,440. The £10,500 and the £10,660 levels for older tax payers remain the same and will not be increasing any more. In fact, the plan is that by 2014/15 all taxpayers will have a tax allowance of £10,000 and the special extra allowances for older people will cease to exist.
Thanks very much Eric.
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