A reader wants to know if they are doing all the right things to limit tax on the savings interest they earn
In our weekly series, readers can email any question about their finances, to be answered by our expert, Rosie Hooper. Rosie is a chartered financial planner at Quilter Cheviot Financial Planning and has worked in financial services for 25 years. If you have a question for her, email us at money@inews.co.uk
Question: I become a pensioner in a few days time, I have savings and my understanding is that you pay tax on any interest payments above £1,000. My money in question is in a joint account between myself and my wife. So is that £1,000 each or between us, as it is joint?
Answer: This is a great question, and one that comes up quite often, particularly at this time of year when many savers are reviewing how interest earned on their accounts may affect their tax position.
The good news is that the Personal Savings Allowance (PSA) is applied per individual, so on a joint account you both have your PSA. So even if you hold your savings in a joint account, each named account holder is entitled to their own allowance – £1,000 for basic rate taxpayers, £500 for higher rate, but sadly nothing for additional rate taxpayers.
In practice, this means that interest earned on a joint account is typically split 50/50 between the two of you (unless you have a legal agreement stating otherwise). So if your joint account earns £1,200 in interest over the year, HMRC will usually treat this as £600 each, keeping you both well below the PSA threshold if you’re basic rate taxpayers.
Now that you’re approaching retirement, it’s a good moment to reassess not just where your savings sit, but how they’re structured between you and your wife. If one of you is a non-taxpayer or has a lower income, it may make sense to hold more savings in that person’s name, since their unused personal allowance could help soak up more interest without triggering a tax bill.
However, it’s important to be mindful of ownership rules. Moving money between spouses is allowed and tax-free, but once transferred, it becomes the receiving spouse’s asset, so this needs to be done with mutual understanding.
It’s also worth considering whether a joint account is still the most tax-efficient option. Cash ISAs remain a solid choice for tax-free savings. Each of you can contribute up to £20,000 a year, and any interest earned is free from tax and doesn’t count towards your PSA. This can be especially helpful if you’re earning close to the PSA threshold and want to shelter more income from HMRC.
If your combined savings interest exceeds £10,000 in a tax year, you may also need to register for Self-Assessment. This is something that catches people by surprise, so it’s worth keeping an eye on your total interest if you have significant balances across multiple accounts.
Of course, if your savings pot is more substantial or long-term in nature, you might also want to explore Stocks and Shares ISAs. These come with investment risk, but for money you don’t need immediate access to, they could offer better returns over time, especially as inflation gradually eats away at cash.
When it comes to financial planning in retirement, the key is balance. Keeping some cash easily accessible for emergencies is wise, but anything above that should work hard for you, ideally in a tax-efficient way.
So, in summary, your joint savings account interest will be split between you both, and you each have your own allowance. But with retirement just around the corner, this could be a great opportunity to check whether your money is not just safe but smartly arranged.