Fixed interest account and capital gains
Discussion
In June 2023 I put £50K into a 2-year fixed rate account with online bank Atom at 5.6%
The interest is paid back into the account annually on 30th June, so gain is
Assuming that I withdraw and move the money back into S&S after the two year fix, am I right in thinking that I have two years of gains under the £3K annual exempt allowance - or would the two-year fix mean that I ended up realising a gain in year 2 of £5,757?
Sorry if this is a noddy question...
The interest is paid back into the account annually on 30th June, so gain is
| Date | 30/6/2023 | 30/6/2024 | 30/6/2025 |
| Value | £50,000.00 | £52,800.00 | £55,756.80 |
| Annual gain | £ 2,800.00 | £ 2,956.80 |
Assuming that I withdraw and move the money back into S&S after the two year fix, am I right in thinking that I have two years of gains under the £3K annual exempt allowance - or would the two-year fix mean that I ended up realising a gain in year 2 of £5,757?
Sorry if this is a noddy question...
Edited by mikef on Tuesday 4th February 12:15
Hi
You are confusing interest INCOME with capital GAIN
They are different and taxed differently. What you describe is interest income.
There is a personal annual allowance for interest income before tax is then paid at your marginal rate and there is a separate personal annual allowance for capital gains before tax is due at the capital gains tax rate of the item you have a gain in.
Each tax year (early April to early April) you can get a statement from Atom Bank telling you what interest you earnt in that tax year.
Dont forget you might be earning interest on other accounts/banks .. the annual tax free allowance is for the total interest that you earn from all sources.
Hope that helps!
Peter
You are confusing interest INCOME with capital GAIN
They are different and taxed differently. What you describe is interest income.
There is a personal annual allowance for interest income before tax is then paid at your marginal rate and there is a separate personal annual allowance for capital gains before tax is due at the capital gains tax rate of the item you have a gain in.
Each tax year (early April to early April) you can get a statement from Atom Bank telling you what interest you earnt in that tax year.
Dont forget you might be earning interest on other accounts/banks .. the annual tax free allowance is for the total interest that you earn from all sources.
Hope that helps!
Peter
Capital Gains Tax is charged when an asset (such as a building or a business) increases in value over time and is ultimately sold or disposed of.
So, for instance, if someone bought a buy to let for £100,000 and sold it for 250,000, they'll have made a Capital Gain of £150,000.
During the course of ownership, the buy to let was generating rental income. The rental income has nothing to do with the capital gain and would have been liable to Income Tax on an annual basis.
The interest on a savings account is the same as the rental income on a rented property - it is the income generated by the asset during its period of ownership, and is taxed under Income Tax rules, not Capital Gains Tax.
So, for instance, if someone bought a buy to let for £100,000 and sold it for 250,000, they'll have made a Capital Gain of £150,000.
During the course of ownership, the buy to let was generating rental income. The rental income has nothing to do with the capital gain and would have been liable to Income Tax on an annual basis.
The interest on a savings account is the same as the rental income on a rented property - it is the income generated by the asset during its period of ownership, and is taxed under Income Tax rules, not Capital Gains Tax.
Boosh-36 said:
I'm correct in saying that any interest earned in the tax year is covered via PAYE with a tax code adjustment, for those who don't need to complete a self assessment.
Is that right? Or is self assessment needed over a certain amount?
It's got quite complicated now with everyone getting an additional £1,000 interest allowance plus a £5,000 Investment Income Allowance.Is that right? Or is self assessment needed over a certain amount?
I think many people will not end up paying tax on interest income but HMRC don't seem to care if they are mising out here and there.
In the old days (i.e. around 10 years or so ago), tax was deducted at source by the bank/building society at a rate of 20% on interest payments.
KenC said:
Not everyone gets the £5,000 starting rate for savings. Those who earn under £12,570 get the full amount. Every £1 learnt above this reduces it by £1 so anyone earning above £17,570 get £0.
Everyone does start off with teh £5,000 allowance but, as you say, they will lose it over certain earnings levels.Gassing Station | Finance | Top of Page | What's New | My Stuff