This week we’re talking about tax, more specifically, Smart Money-Shifting.

With interest rates rising, this is good news for savers, or is it?

The tax implications of earning interest on your savings income should be looked at carefully, as those with savings begin to see a decent return.

Non tax payers can use both their personal tax-free allowance of £12,570 and their savings allowance of £1,000 to offset any tax deducted at source on interest income up to £13,570. Anything above this income level will be taxed at the basic rate of 20% (Up to income of £50,270).

Once your income is above £50,270 (the basic rate band), then your savings allowance reduces to £500 and you pay tax at 40%.

Higher earners, those earning more than £125,140, will lose both their tax-free personal allowance (£12,570) and the savings allowance (£500), and pay tax at 45% on interest income.

Knowing all of the above information can assist you in determining which spouse/partner should hold the bulk of your savings. This will therefore determine who benefits from the best tax treatment.

There is one other, little known, tax allowance called “The starting rate for savings”. This is where you can earn up to £5,000 in interest on savings tax free. Your other income must be less than or equal to the personal tax allowance of £12,570. Only certain types of interest on savings income will benefit. For every £1 of income, you have above the £12,570, you lose £1 of the starting rate for savings allowance. For example, if you have total income of £15,000, then you are £2,430 above the tax-free allowance. Your starting rate for savings allowance will reduce to £2,570 (£5,000 – £2,430).


Yet again, the above is an example of the ridiculously complicated UK tax system.

We hope that this blog helps make these tax issues a little clearer, and shows the benefits of Smart Money-Shifting!