With the Bank of England base rate currently at its highest level since the banking crisis in 2008, there are considerations that should be given and planning taken as we move into the 2023/24 tax year.

Historically, savers were accustomed to bank interest being paid with tax already deducted. In April 2016 this changed with all interest being paid gross, requiring savers to declare to HMRC themselves if taxes are due on bank interest, now forming part of total taxable income.

The level of total income will then affect what is payable as illustrated below:

Total income	Tax treatment
Less than £50,270	First £1,000 of bank interest falls into Personal Savings Allowance and charged at 0% Any interest above £1,000 charged at 20%
Between £50,270 and £125,140	Personal Savings Allowance is £500 and charged at 0% Any interest above £500 is charged at 40%
In excess of £125,140	Removal of Personal Savings Allowance All bank interest taxed at 45%

 

How could you be affected by interest being added to income?

• Increased income could result in you becoming a higher rate taxpayer and reduction of your Personal Savings Allowance to £500
• You could become an additional rate taxpayer, loosing your Personal Savings Allowance all together
• If total income exceeds £100,000 your Personal Allowance of £12,570 could start to be reduced
• Any child benefit may require repaying as a result of the High Income Child Benefit Charge
• The amount that can be paid into pension each year tax efficiently may reduce as a result of tapering of the annual allowance as total taxable income increases
• Marriage Allowance may be removed

What can you do?

Reviewing and utilising tax allowances available to you at the beginning of the tax year can often be sensible, such as:

ISAs – Individual Savings Accounts

• You may be able to add up to £20,000 each into ISAs every tax year
• Interest does not need to be declared to HMRC

NS&I Premium Bonds 

• Any winnings are totally tax-free

Personal pension contributions

• In addition to helping to accumulate pension provisions, personal contributions also serve to bring your adjusted net income down for tax purposes

Making use of a spouse / civil partners available allowances

• If a spouse or civil partner has a different level of income or personal allowances, dependent on exact circumstances, it may be worth considering placing savings in their name

To ensure you are making best use of opportunities available to you please contact us on 0330 320 9280, email info@cravenstreeetwealth.com or complete our online enquiry form for advice relating to your own personal circumstances.

The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute investment, tax, legal or other forms of advice.

You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation.

Craven Street Financial Planning Limited is authorised and regulated by the Financial Conduct Authority.

Do remember that the parental settlement rules remain in place.  Parents are able to place savings into their children’s name, but anti avoidance rules prevent parents from gaining any benefit to this.  Where parents gift monies to their minor children, and the interest exceeds £100, the parent will be taxed on all income arising as if it is their own.  This can be avoided by using Junior ISAs but if that child has a Child Trust Fund in place you are unable to hold a Child Trust Fund and a Junior ISA at the same time.

Please note that these figures are correct on 21^st March 2023 and based on our understanding of the tax rules for 2023/24 tax year.