Calculation of Tax on Savings Interest Earned in a Shared Bank Account by HMRC
In the financial year of 2022-23, the number of people paying tax on their savings interest is expected to quadruple compared to the previous year. This trend is set to continue, with approximately 2.64 million people expected to pay tax on their savings interest in 2025-26.
For those receiving NHS pensions, it's essential to understand the tax implications. If the spouse in receipt of the NHS pension exceeds their Personal Savings Allowance (PSA), their interest will be taxed at 20% or 40%, depending on their tax rate and whether the NHS income quoted is net or gross.
Each individual can put up to £20,000 a year into a cash Isa, and any interest earned inside it will be tax-free. This can be a beneficial option for those looking to minimise their tax burden.
The savings tax burden for those over 65 years old is set to increase significantly this financial year. In contrast, the spouse without income may benefit from the starting rate for savings, which allows up to £5,000 in savings interest to be earned without being taxed.
When earning interest from a joint savings account, HMRC splits it down the middle, taxing each individual on half. However, if actual entitlements are not 50/50, supporting evidence is required. HMRC usually collects any tax on savings interest automatically by adjusting your tax code if you are on the PAYE scheme.
It may be more tax efficient for the lower earning spouse to receive the full amount of interest, but this would need to be formally decided and evidenced. Basic-rate taxpayers can earn £1,000 in savings interest before paying tax, and for higher rate taxpayers, this allowance drops to £500 a year.
An alternative could be to hold the savings account solely in the name of the lower income spouse, but both parties would need to feel comfortable with the change in ownership of the savings. It may be beneficial to keep any savings left outside Isas in the name of the lower taxpayer to be as tax efficient as possible.
In terms of bank offers, while there is no specific information about which bank offers the highest bonus for Premier accounts, some banks offer bonuses for new accounts or high interest rates on savings products like Tagesgeld (daily money) with rates up to 3%, while Girokonto (checking accounts) bonuses can be around 150€. For precise Premier account bonuses, checking individual bank offers directly is recommended.
Lastly, it's important to note that £2.5 billion of the tax on savings interest in 2025-26 is expected to come from pensioners. It's crucial for individuals to understand their tax obligations and plan accordingly to minimise their tax burden.
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