Savings Query

If you put your savings into an ISA account you won’t get get any of it taxed. The amount you can legally put into a cash ISA each year is currently £20,000 dropping to £12,000 next year.

Similarly premium bonds are tax free.

Even with savings which aren’t in tax free accounts you would only pay income tax on any interest exceeding £1000 per year.

Thankyou Grannytomany I will look into that.

The ISA limit is going to remain at £20K for the over 65s, not drop to £12K.

This is per person per year Moonwatcher1904

The ISA changes are from April 2027, not next year.

Just to correct myself 😀 I meant to say 65 and over.

Pension Credit tops up a couple’s income to a guaranteed minimum income of £364.60 pw. From what you have described, it would seem that your income is higher than that so the rules regarding how savings affect Pension Credit won’t apply.

You each have an individual tax free ISA allowance of £20,000 per year so you can save up to £40,000 per year tax free.

As others have said, the Budget Statement changes to cash ISA savings limits from 6 April 2027 will only apply to people under the age of 65.

In addition, basic rate taxpayers have a tax free Personal Savings Allowance of £1,000 per year - £500 for higher rate taxpayers, so they only pay tax on taxable interest in excess of those amounts.

From April 2027 the tax rates on taxable interest exceeding the PSA will increase by 2%, from 20% to 22%, 40% to 42% and 45% to 47%.

www.gov.uk/government/publications/changes-to-tax-rates-for-property-savings-and-dividend-income/change-to-tax-rates-for-property-savings-and-dividend-income-technical-note

Tax is applied to the interest generated by savings, and so it should as its income after all.
Best option is an ISA

Transfers between husband and wife do not get factored into any taxation, and cash savings have to be considerably more than £3,000 to stop you getting benefits.

There is no savigs limit for Pension Credit, but if your savings exceed £10,000, your Pension Credit will be reduced by £1 a week for every £500 of savings in excess of £10,000.

Tax on savings is limited to the interest earned on it, so, for example, with savings of £3000, and an interest rate of 5%, you would be taxed on the £150 interesst you received at standard rate of 20%, which is £30.

The £3,000 is the most you can give any one person tax free , in any one year.

Capital gains tax is only paid if you make a £3,000 profitor more on the sale of any asset in one year. If you, had, for example, bought some British Gas shares when it was privatised, for 1,000 and sold them for £10,000 this year, you would be taxed on £6,000 of the £9,000 profit.

As I said in my original post we don't get Pension Credit we just get what I said before. We just wanted to know the limit of an ordinary savings account before we had to pay tax.
I've looked at ISAs but we want to be able to draw money out as and when we needed.
We will perhaps put some more into our savings and see what happens.
Thanks for your replies.

You can withdraw money from an easy access ISA just the same as a savings account

On an ordinary savings account paying 3.5% interest, you could each have £35K savings - which would generate the £1K which would incur tax.
My ISA is a cash ISA - I can withdraw as many times as I want - all tax free.

Also, just a point, but why have joint savings? You’d be able to double your investments by keeping them separate.

Moonwatcher1904

As I said in my original post we don't get Pension Credit we just get what I said before. We just wanted to know the limit of an ordinary savings account before we had to pay tax.
I've looked at ISAs but we want to be able to draw money out as and when we needed.
We will perhaps put some more into our savings and see what happens.
Thanks for your replies.

You can draw money out any time with an easy access isa

By default, interest on a joint savings account is deemed to be split equally and counts towards the individual’s Personal Savings Allowance which is £1,000 for a basic rate taxayer.

Easy access accounts are currently paying between 4% and 4.5% so a couple could save another say £45,000 on top of the £40,000 they can put into an ISA annually (£20,000 each).

£45,000 in a taxable joint account paying 4.4% would earn interest of £1,980 deemed £990 each so within the individual Personal Savings Allowance for basic rate taxpayers.

In other words, a basic rate taxpayer could save £42,500 a year - £20,000 in an ISA and another £22,500 in a taxable account a year and not have to pay any tax on the interest.

There is also a starting rate for savings for people with lower incomes where someone can earn interest up to £5,000 and not have to pay any tax.

www.gov.uk/apply-tax-free-interest-on-savings

All in all, the tax rules for savings are very generous imo.

If each of you puts 20K into an easy access ISA right away, then it will be earning interest tax free and you can withdraw funds at any time for refurbishments. Then when the new tax year starts in April 2026, you can both do the same again. You would then hold 80,000 in tax free savings

Moonwatcher1904

As I said in my original post we don't get Pension Credit we just get what I said before. We just wanted to know the limit of an ordinary savings account before we had to pay tax.
I've looked at ISAs but we want to be able to draw money out as and when we needed.
We will perhaps put some more into our savings and see what happens.
Thanks for your replies.

I fully understand your position. The problem is there is no definite figure before you pay tax. The HMRC will add any interest you earn to your total income and if A + B = in excess oof £12,570, you will pay tax.

As I said there are other limits, for Penson Credit, getting help with care home fees, capital gains tax, none of which affect you.

For you the simple answer is that there are no limits on how much you can save, simply if your income plus savings exceed £12570, you will pay income tax at the rate of 20 pence in the £

That is incorrect.

First of all there is a starting rate of £5,000 for savers whose other income is less than £17,570 - which might apply to OP if her income is only state pension plus a small works pension.

Say someone has gross pension income of £14,000 and interest of £2,000 from a taxable account.

Their Tax Personal Allowance is £12,570. It’s used up by the first £12,570 of pension income.

The remaining £1,430 of pension income (£14,000 - £12,570) reduces the starting rate for savings by £1,430 making the starting rate for savings £3,570 (£5,000 minus £1,430).

In addition, there is the Personal Savings Allowance of £1,000 for basic rate taxpayers (£500 for 40% taxpayers, nil for 45% taxpayers). This is in addition to what can be saved in tax free ISAs. If someone has utilised their £20,000 tax free ISA allowance for the year and has other savings in taxable accounts, the first £1,000 of interest earned on them is tax free.

Adding the starting rate and Personal Savings Allowance together in this example would come to £4,470 (£3,570 + £1,000). The interest of £2,000 would be tax free.

Explained here:

www.gov.uk/apply-tax-free-interest-on-savings

and here by MoneySavingExpert Martin Lewis:

www.moneysavingexpert.com/savings/tax-free-savings/

As it seems that OP’s own pension income is less than her husband’s it might be worth considering how their savings are organised in order to take advantage of the starting rate if applicable, to put the bulk of savings in her name.

As others have said, there are easy Cash ISAs which are also flexible meaning you can take money out, and return it in the same tax year (by 5 April), without reducing your current year's ISA allowance, which is £20,000.

At the time of writing Trading 212 offer the best rates.

www.moneysavingexpert.com/savings/best-cash-isa/

Note what Lewis says in the video at around a minute in. If other income is low then you don’t necessarily need to use a cash ISA if the starting rate and Personal Savings Allowance covers the interest earned.

Thank you for the information. PaynesGray
I'm going to have to read and inwardly digest tomorrow.

My DH is bothered that if we put too much across into the savings we will be taxed and has a savings limit of £3000 in his mind.

I would have thought that putting money into any good savings accounts where a number of withdrawals are allowed without penalty is better than leaving it to build up in a current account with no interest.

I would choose cash ISAs in the first instance.

NotAGran55

The ISA limit is going to remain at £20K for the over 65s, not drop to £12K.

This is per person per year Moonwatcher1904

Quite right. I’d forgotten that so thank you for pointing it out,

The OP has made it clear that she is not interested in an ISA for his money. It is money being put aside, presumably short term to pay for house renovation and all she wants to know is whether if they have more than £3k in a savings account.

The answer to that is no. She is not asking to be confused with talk of ISAs and other more complex matters. The ssum involved is very small.

That is not how I interpret what OP says so perhaps she could return to clarify.

What she say is that her DH has a savings limit of £3,000 in his mind. We are close to that and worried about putting ^any more into that account.^

That suggests they think that anything over that limit will be taxed.

£3,000 is not a lot of money to have a flat completely refurbished when a painter and decorator will charge £1,000 a week for labour just to paint and paper one room. Clearly OP and her husband intend putting more money aside for the work else she wouldn’t be worried about putting more than £3,000 into an account.

OP is also not understanding how cash ISAs work as its perfecly possible to withdraw money as and when needed with an easy access flexible cash ISA - but, as Martin Lewis says, there are other tax breaks for savings which can be taken advantage of.

It occurs to me that OP’s DH may be thinking back to when the cash ISA limit was only £3,000, which is was from 2000 to 2008. The latter was the year of the financial crash after which interest rates plummetted to historical lows for 14 years. By March 2009 the base rate had dropped to below 1% and remained below 1% until 2022.

After the crash, people were looking for other places to get a better return on their savings. Many people took money out of cash ISAs and moved it into Premium Bonds (or got involved in buy to let) only reconsidering cash ISAs towards the end of 2022 when banks (including the new challenger banks) were offering a much better rate of return.

It doesn’t hurt to give a comprehensive reply as it could help others reconsider how they save. As Martin Lewis says in his video, people often overlook the £5,000 starting rate for savings interest. Possibly that’s because working age people are likely to be earning above the income level where the starting rate applies. But pensioners with income not exceeding £17,570 should be aware.

Government statistics show that the average pension income for one person is around £300 a week or £15,600 a year so they would fall within the scope of the savings starting rate allowing them more tax free savings than they might have supposed. I think it’s particulary important for women to consider this as it’s women who tend to have smaller workplace pensions as a result of time out of the workplace for caring responsibilities.

Moonwatcher1904

As I said in my original post we don't get Pension Credit we just get what I said before. We just wanted to know the limit of an ordinary savings account before we had to pay tax.
I've looked at ISAs but we want to be able to draw money out as and when we needed.
We will perhaps put some more into our savings and see what happens.
Thanks for your replies.

If you look at your local building societies you should find that some of them will do an instant access Cash ISA account. The limit for this account is still £20,000 for over 65's, with a new limit coming of £12,000 for younger people. Even some of the accounts that are not strictly "instant access" do allow you to make at least one withdrawal over the year, though this varies for different societies.

Grannytomany

If you put your savings into an ISA account you won’t get get any of it taxed. The amount you can legally put into a cash ISA each year is currently £20,000 dropping to £12,000 next year.

Similarly premium bonds are tax free.

Even with savings which aren’t in tax free accounts you would only pay income tax on any interest exceeding £1000 per year.

The over 65s are keeping the £20, 000 allowance for ISAs.

Astitchintime

Tax is applied to the interest generated by savings, and so it should as its income after all.
Best option is an ISA

Tax is only applied after the allowance of interest up to £1000 a year per person or £500 per person for higher rate tax payers.