Sorry, I meant why the LISA is the next best thing?
Best savings account?
- Thread starter Merlin5
- Start date
dlockers
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dlockers
Annual allowance could mean your comment makes sense - but that is unlimited (for now).
Another savings account question from me, as I am classed as a higher band tax payer,
I have been on the checker sites, and due to my income through work, my personal savings allowance if i were to use a normal savings account (non isa)
I done a quick calculator test based on an example of a £10k deposit in to a normal savings account, when im classed as a higher tax rate payer, example savings account of 5.5% interest rates
the calculator outcome is
Amount of savings interest you will earn in 12 months
£550.00
Your PSA allowance
£500.00
Would you need to pay tax on your savings?
Yes
I assume this means that if i save £10k in such account (normal savings) the first £500's worth of interest will be earned tax free, any interest earned over the £500 will be taxed? is this correct? how much would they typically tax me on £10k and earning interest over £500 ?
If i do the same calculation but lower the interest rate to 5.0% it says would you need to pay tax on your savings, it states no, i assume this is because 5% of 10k is 500, so either i suck up and pay some tax, or if im using a normal savings account just keep it so the interest earned is under £500
I have been on the checker sites, and due to my income through work, my personal savings allowance if i were to use a normal savings account (non isa)
I done a quick calculator test based on an example of a £10k deposit in to a normal savings account, when im classed as a higher tax rate payer, example savings account of 5.5% interest rates
the calculator outcome is
Results
Amount of savings interest you will earn in 12 months
£550.00
Your PSA allowance
£500.00
Would you need to pay tax on your savings?
Yes
I assume this means that if i save £10k in such account (normal savings) the first £500's worth of interest will be earned tax free, any interest earned over the £500 will be taxed? is this correct? how much would they typically tax me on £10k and earning interest over £500 ?
If i do the same calculation but lower the interest rate to 5.0% it says would you need to pay tax on your savings, it states no, i assume this is because 5% of 10k is 500, so either i suck up and pay some tax, or if im using a normal savings account just keep it so the interest earned is under £500
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Yes, 40% of anything over £500 assuming you're not into the £100k earnings where tax starts shifting again.
dlockers
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dlockers
How close to £100k are you?
Well my taxible income is all work at the moment, and is not fixed its variable due to on call and overtime which adds quite a bit , so far my taxible pay this year (as of Dec 2023) is a tad over the
six
three
all my savings at the moment are in a tax free environment,
Yes, but if you are going the savings route with everything then paying tax is preferable to earning nothing but if you have so much cash i'd look into S+S etc, cash rarely outperforms inflation long term.
dlockers
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dlockers
The thing to watch then, is that the £500 whilst "tax free" is still considered income.
So basically, it isn't tax free. It is actually taxed at like 60%.
E.g. you earn £100k after pension and deductions (not your gross)
you then earn an extra £500 in interest
That interest is then over £100k, so you lose 50p for each £1 you are over,
You're left with £200.
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Really? as reading it, it looks different according to the .gov.uk website
It states you pay tax on anything AFTER your PSA ?
| Income Tax band | Personal Savings Allowance |
|---|---|
| Basic rate | £1,000 |
| Higher rate | £500 |
| Additional rate | £0 |
Interest covered by your allowance
Your allowance applies to interest from:
- bank and building society accounts
- savings and credit union accounts
- unit trusts, investment trusts and open-ended investment companies
- peer-to-peer lending
- trust funds
- payment protection insurance (PPI)
- government or company bonds
- life annuity payments
- some life insurance contracts
If you go over your allowance
You pay tax on any interest over your allowance at your usual rate of Income Tax.
Surely this means that if i earn interest over the £500 (which would be my current PSA because im a higher rate tax payer), i only pay interest on anything OVER £500 ? not anything up to £500,
I will only pay tax on anything over the £500,
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dlockers
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dlockers
You have to declare the £500 as income (separate spreadsheet/maths altogether).
My maths may not be totally correct, i.e. the 40% may not be taken off as it was savings - but the reduction to your personal allowance (an effective 20% tax) will be.
So £500 would mean a reduction of personal allowance by £250, which would then be taxed at 20% - so net gain £450.
dlockers
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dlockers
How much is in your pension?
What I have stated is over an issue if your ADJUSTED NET goes over £100k (i.e., salary post pension, any other deductions).
How old are you?
dlockers
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dlockers
Same. Think I leveraged a rule where H2B rules were updated so in the end I made about £8k across two people in the space of 13 months.
I have no idea how much is in my pension, I only have a workplace pension, and no private pension, the workplace pensions i had were combined in to one single workplace pension provider now (Legal and General) , im not sure if the value if the pot has dropped ? is that even a thing? Probably not a lot! just checked - forty two k ish
I am 39 years young.
Unfortunately i started a pension in later years, back in the "day" workplace pensions were not a thing and were not auto signed up to, and you had to contribute yourself i think, my first few jobs using them they were only paying 2.5 or 3% and i was not contributing, then i started contributing a bit, now i have joined a company which has a decent default contribution which the employer pays and i can either choose to contribute myself or just let them contribute
I tend to put my own in savings rather than pension
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Yes I did the same. Started with HTB on max interest (Halifax I think) then dumped it into LISA. Added the 4k for that year and then again in April.
I thought you were older. Must be mixing up with someone else.
I'm same. My first company didn't have a matching pension. And tbh I didn't think about it. So I only started properly saving late 20s. Can't remember when. Very late 20s.
In a similar position to you as all companies I've worked for have only matched 4-5pc
dlockers
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dlockers
I think you want to take a look at your full portfolio. If you able to free up 3k a month for savings, if paid into a pension, it would happen "before tax". As a higher rate payer that means you are getting a 40% top-up effectively.
dlockers
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dlockers
That's pretty good given your age. It normally increases to bigger values as you get older.