Managing Tax on Savings Interest

BBC Sounds, music, radio podcasts . From that crazy viral video to bizarre trends that are taking over our social feeds. We investigate the stuff you're scrolling through in our brand new podcast Top Comment . I'm BBC correspondent, Mariana Spring, and I'm investigative reporter Matt Shay. Every week we look at the stories spilling out from our screens and into real life. To work out what's actually real and what's not top comment. Listen on BBC Sounds . Hello, welcome to this MoneyBox podcast from telling Sid to asking Savi Squirrel .estment Inv firms want more of us to invest, and so does the government. And as savings rates ease upwards, how can you ensure you don't pay more tax on the interest than you need to? But first, millions of adults across the UK have not told their families what they want to happen to their money and property when they die. Steppe, the Society of Trust and Estate Practitioners, reported this week on a survey which found four out of five adults had kept their lo ves in ignorance of their wishes. A third of them didn't even have a will. Mark and Helen both on their second marriage with five children between them, were in that situation when the unthinkable happened. There was a mechanical failure on the car, it left the road , banged into a tree and exploded into a fireball. Luckily for Mark and his family, he survived thanks to the bravery of three strangers who pulled him from the burning car seconds before the fuel tank exploded, saving not only his life, but what Helen said would have been chaos in the family's finances. Dan's with us, Dan, you spoke to Helen about this . Yeah, and that car crash , Helen was just talking about, Paul, it was quite the remarkable escape for Mark. Well, that happened back in twenty twelve when their children's ages ranged from four years old to eighteen. And not only that, but they ran a business too, and in terms of planning for when either of Mark or Helen died, well, neither of them had done much of that. If we'd lost Mark that day it probably would have been close to chaos. We'd have had life covered that would have cleared the mortgage, etc . But in terms of there being any buffer beyond that very little at all , I can't even begin to think what it might have been like to be honest. And Dan, I mentioned that Step survey, which found most people don't have plans for their finances when they die. What's the detail on what they found? Well, Step surveyed two thousand adults across the UK and found eighty per of c thement said their family aren't aware of their wishes for when they die, with around thirty five percent saying they don't have a will. Now another bit of research step did was to speak to more than five hundred of its members, so obviously they're experts in this area, Paul . Nearly half of those said they've seen an increase in disputes following the death of a loved one within blended families. Now, needless to say, after nearly losing her husband Mark, or Helen treated it as a bit of a wake up call. We've obviously got provisions in place, but life moves on and the will and it's a living and breathing thing itself and the dynamics of the family continue to change. I mean my youngest is now about to go to university and everyone else is off doing their own things. So if I'm really honest, we'd do an update again to capture all of that. Seven years ago our niece and our nephew joined our family as well so we would want to provide for them in some way. So it's something that we know we've always got to keep on top of. But we have open conversations about it as a family as well. Items in the house, pieces of jewellery we actually laugh and we joke about it. Oh yeah, put your name on it if you like because those conversations are really important . So Dan, Helen and Mark now well organized, why were they and indeed most others as that research found so unprepared? I think one of the reasons Paul so many people don't plan for when they die is because A they don't like talking about dying . But B, they might also think estate planning doesn't matter to them. But we're not talking about big country houses and landed estates. We're actually talking about owning or part owning your own home if you have a pension, if you have any savings or investments or if you're in work and have death related work benefits. These are all very common things and the type of things that do need planning for when someone dies. Thanks, Dan. Well with Dan in our Salford Studio is Nina Sparring. She's a partner at Solicitors Price Slater Gorne and a member of STEP which produced that report this week . Nina Speringr is, it really chaos if you haven't prepared your finances for your death? Not necessarily in every case, but I think it's safe to say that you're going to create uncertainty and stress at an already difficult time. And Helen's story is a great example of that. It must have been awful for her. And are you still finding clients who really are unprepared? All the time. It's absolutely incredible. The amount of people that I see that come in, they haven't even thought about it, they haven't talked about it. Business owners, for example, who don't actually know how their business is going to pass when they pass away . And so what kind of planning do you set them off doing? What are the first things to do? The first things are really simple, just talk about it, think about it . Although it might seem difficult, it's better to have these conversations now than for there to be stressed further down the line. I suppose people get concerned though, if they have several children as Helen and Mark did and other relatives, they might think, well, I'm not sure if I want to give them all the same and that all gets a bit embarrassing, doesn't it? Well, I think there are a lot s of things that you can take into consideration. So you can sit down and think about, well, I can make a will and you can include a structure that prioritises certain people or you can think, well, I want to give something to my spouse but also for my children to inherit perhaps from a previous relationship. There are lots of things but the starting point is to just talk about it. Yes, and I suppose what we call now blended families, it's even more important because there may even be ex partners who've got property nevermind stepchildren and so on . But making a will from what your survey said isn't always enough because it says the number of family disputes after someone dies is on the increase. Why is that? It's difficult to say really. I think sometimes if you are relying on assumptions or promises that have been made years ago , it's important not to think that that's going to happen and to revisit your plans as circumstances change. So for example, if you remarry or go on to have more children or if people's needs change as well . Yes, and of course if you remarry in England, Wales or Northern Ireland, your will becomes invalid, and I believe there are even changes in your will in Scotland when you get divorced. You have to think of those things. But is preparing in advance like Ellen Mark, does that help resolve or prevent disputes . I think you've always got to be alive to there being a dispute , but a great place to start is preparing a will. Now, we all say prepare a will . Some people think, well, I don't want to spend all that money on a solicitor. Are there problems with wills that aren't done properly? You know, you can download a form and do it. Can't you? You go to a so called will writer which I think is unregulated. Should you always use a solicitor . some will writers are unregulated. You don't always need to use a solicitor , but I would always recommend using a TEP so that is somebody that is qualified in that particular area and they will be able to specialise and advise on those particular points. Yes, I mean, I guess you would say that, but people are still afraid of the cost. What will it cost? Is it hundreds, is it thousands ? I think you'd probably be pleasantly surprised . I think of it as if you have a house, you'd want to insure it. You might have an estate that's worth a few hundred thousand pounds. It's money well spent, but it doesn't have to be complicated and you're paying for the advice, you're not paying for the documents . Yes, yes. And I was also advised many years ago to set down the details of all my finances, you know, loans, possessions, accounts, so that people know because they don't necessarily know about your affairs, do they? Now people listening, perhaps among those millions who haven't done all that, briefly, where should they start ? Well , there is a step website, so they've got a page for the public and there's an article called get started. So that's a really good landing page that you can have a look at . Again, just sit down and talk about it with your family , go and see an expert. If you go and see somebody, for example, it's a solicitor that's been recommended to you, they can put you in touch with people like financial advisors and accountants. The main thing is don't do nothing. Lina Spearing Corpries later G,ordon. Thanks very much indeed. Now, it's nearly forty years since the government sold off British gas and encouraged us all to tell Syd about buying shares as part of Margaret Thatcher's dream of a share owning democracy . Or Dude ear is interest you. British gas shares. They come out in November. If you see Syd, tell him. What's up? In old days of British gas shares, they're really easy to do. Give them a ring . You can see telling . Well, forty years on, the present labour government also wants people to invest more and it's appointed theest Invment Association , with nineteen financial service firms to lead an industry initiative to persuade people with savings to move at least some of them into shares. And for this invest for the future campaign, there's a new seed in town. Savvy Skrill here . Investing is like exercise . It can be daunting to get started , but once you make a move , you're well on your way, and the long term benefits are well worth it. And just to be clear, Savy Squirrel is not a regulated financial advisor, and the campaign tells me he's not actually giving financial advice. Just as well, as you'll see more be ofing Sav Squviryrel as the campaign spreads to a coffee shopping cardiff on Wednesday and to TV adverts in the autumn. Our reporter Joe Krasner asked people in Liverpool if they'd seen the new campaign and what they think about investing. I am not aware of this campaign , if I'm honest. And do you invest? I do. I invest small amounts every month. And is anything stopping you investing? Maybe having the knowledge and understanding of how to invest money. I would definitely be interested in investing, especially if I saw campaigns around definitely. And what would help you invest that a little bit more? Maybe being more sensible with my money, less impulsive buyers and decisions and I think that's probably the main thing to be honest. Well, to begin, it's hard to invest because my salary is not enough to make any kind of investment at the moment, so it's very difficult for me. I'd like to try. I'm afraid I haven't heard of Savi Squirrel no. I'm quite old and I really want to make sure that we're always told the shares go up and down and I perhaps not get so much profit but at least it's safe I mean, cash is .re Cnturly , not majorly, and just small exposures here and there. And what's stopping you investing a little bit more? I think risk at the minute and the way the world is in terms of prices rising, I think there's a little bit more comfort in knowing that the money is safe in terms of a current account as a bit of an emergency fund, so to speak, obviously with investments, there's always a risk that they could go the other way as well. I also have cash ISA but I've not invested in stocks and sh ares. I think really for fear of losing everything . I know that in theory that if you keep it long enough you should make more money than leaving it sitting in a bank account. Yeah, I guess just the fear of losing everything I, think, is what puts me up . Well, with me in the London studio is Dr. Ilv Bextrom, a senior lecturer in finance at Kings Business School and indeed a former banker. Ilvbextrom, successive governments have tried to get individuals to invest more. Do you think this campaign will be any more successful? It's possible. I think it's there to be seen . The campaign, supported by several financial services companies, aims to encourage British people to convert cash into savings . Of course, have the potential for high return . It has the potential, yes, but of course there is that fear of losing money, isn't there, which was mentioned in Liverpool. How do you overcome that fear? Because everyone has it, they think I don't want to lose money. I don't want to lose all my money. How do you overcome that fear about investing? I think it's important to reiterate what we heard from the people in Liverpool is fear, anxiety , lack of knowledge, not being able to afford it, worrying about risks . The key to overcome those is knowledge and that has to start from a young age and I think that's going to be central to whether the campaign is going to be successful or not. Yeah, so you think young people have got to be more interested in investments by the industry. They tend to think of investors as older people. And that's partly because older people do tend to have more money, and you need quite a lot of money to get independent paid for financial advice, don't you? Financial advice is expensive , but I hear I will look to schools . Over seventy percent of children leave schools without sufficient financial knowledge to manage their personal financial plan for the future. Yes, I know governments in England and around the UK are working to introduce more financial education into the curriculum , is that not going to be enough Possibly not. I've looked at sixteen year olds and they feel that they do not have the knowledge they need to manage their personal finances. If we're going to create a cultural shift where we are looking to ensure that the British public take responsibility for managing their pensions , their finances . We need to increase the basic level of knowledge. Yes. And where do you start getting that? Because the Investment Association did some research. It says more than four and ten people with savings but no investments want to learn more . We heard that from the people in Liverpool too that don't quite know where to start . How does the financial industry or indeed the government provide that basic information that people can trust and know what to do with. So there's probably two things to say about that. Firstly, the campaign is looking to encourage people to convert cash into investments , but then we are sort of ignoring the people who can't afford to invest , who can't afford to live three months on the savings that they have if they lose their jobs. And that's sixty five percent of people in the UK, I believe . But in order to find out more, there are reliable sources like the Money in Pension Service, but people don't know about it. No, the money in pension service is a sort of government sponsored thing done by the industry, and I must say it is very good. But you have to go online, you have to look at it, you have to think about it. I mean that kind of self taught approach to investing is time consuming, isn't it? And the financial conduct authority found that even people with over a hundred thousand pound s saved up nearly half of it was in cash. How are you going to get them to be prepared to risk if that's how they see it more in investments? It's that kind of basic knowledge that's online enough. Possibly not because it's not reaching people . And if successful, this campaign has the potential to bring investments to the people , but I think we have to see what happens to it if and it's going to be successful or not. And what about age differences as you get older, people tend to think if they're if they're retired if they're in their sixties or seventies that they don't want to take any risk because there's no time for things to be put right. So do your investment objectives have to change with age ? So investments, if you're going to take risk , it pays out over the longer term because volatility becomes lower and the potential for return is there. When you near retirement or closer to older age , then it is quite important to think about de risking your portfolio unless of course you're very wealthy and you're saving for future generations. Yes, unless you're very wealthy, that solves a lot of problems, doesn't it? And briefly a first step in a word, what is the first step someone listening should do this weekend? Very briefly . Find out what you can do . Have you got an ISI ? Have you invested some of that ISI into stocks and shares? Have you got a pension plan either with your employment or doing it yourself? Dr. Elva Bextrom from Kings Business School, thanks and that might almost have been the agenda. For Wednesday's Moneybox live with Publicity Hannah those questions, thank you very much for them. She'll be here looking at investing your money with an expert panel, though sadly, Savi Squirrel won't be there. You can email your questions or concerns to moneybox bc. co. uk or you can send us a message or a voice note on WhatsApp O three zero six seven eight three one eight three People in Northern Ireland who heat their home with oil . And after finding it difficult to afford, will be able to apply for a hundred pounds towards the cost, but not until the summer, at the earliest. The money over thirty six million pounds is from the Northern Ireland executive and the UK Government . Dan Whitwith still with a stand. Heating oil prices did rise sharply, didn't they when the war began in the Middle East? Yes, in fact, Paul, all over the UK, the price more than doubled in the space of just a week. Now it has fallen back a bit but is still much higher than it was before the war began. In Northern Ireland around half of all households rely on oil to heat their homes. That's around four hundred seventy thousand households. In Northern Ireland the average price for one thousand liters has risen from fifty six pence a litre before the war to ninety two pence today. Yes, that is a big rise and we've reported before, of course, that the UK government was giving money to help people struggling with that cost and indeed how that help would be given in England, Wales, and Scotland, but now you've got a bit more detail on Northern Ireland for us. Yes, so the Northern Ireland executive has now said it will give a one hundred pound prepaid card , which people can use to purchase oil , it'll be available to households with an income below thirty thousand pounds a year or on some means tested or disability benefits. But it won't happen immediately a Stormont needs to pass a law to authorise it. The Minister Responsible said in April that could take at least three months. Thanks, Dan, and there are different help schemes, as I said, in all other parts of the UK . The number of people paying tax on interest earned by their savings is growing. And HMRC expects the amount they pay to rise to nearly half a billion pounds tax. That's almost three times the amount paid in twenty twenty two. And with rates paid on savings creeping up and warnings by the Bank of England that it may raise interest rates later this year, that tax take is expected to rise further. Basic rate taxpayers can have up to a thousand pounds a year in savings interest before any tax is due . And for many years, because interest rates were low around one percent in many cases, not many people would go over that limit, but in recent years that's been changing, of course. Here's Moneybox listener, James. He got in touch worried he might have to pay tax on the interest his savings were now earning. They were paying interest at five percent and that works out there if you twenty thousand pounds into an account that's the one thousand pound interest . But what I hadn't thought about was that one or two of my other accounts I were getting paid interest on top, so it took me over the threshold. But if that money had been in Yice accounts, it wouldn't have affected it, but now I've started moving stuff into ISIS, so I won't be I won't be paying tax on it anyway. Live now to Clare Walsh, she's a chartered financial planner from midsummer wealth. Claire Walsh is James doing the right thing, either moving savings to his wife, who I understand is not a taxpayer or putting his money into an ISA. Yes. Putting it into ISIS. So ISAS are fantastic because you can put twenty thousand pounds a year into them and the money grows completely free of tax. So if it's in investments , capital growth, if it's in cash, the interest , everything's completely free of tax in I za and you can get it out without any tax as well . Yes, yes. With his and also moving money into his wife if he's got more than twenty thousand pounds that he's needing to save and his wife's also used her eyes allowance. If she's a lower taxpayer, that makes more sense to keep it in her name as well. Yes. And it is complicated a bit though, isn't it? In his email, James asked us about thresholds . As I said, you get a thousand pounds in saving s interest before tax is due, but there are different thresholds if your income is lower or indeed if your income is very high . Yes. So obviously you've got everyone's got their personal allowance, which is twelve thousand five hundred and seventy pound s , which any income is tax free . And then many people are unaware there's also a starting rate for savings which is five thousand pounds . So you could have up to se venteen thousand five hundred and seventy pounds of savings income that would be completely free of tax . And then you've also got the personal savings allowance, which is one thousand pounds for basic rate taxpayers and five hundred pounds for higher rate taxpayers. Yes, and of course they've been frozen for ten years since they were introduced. They should be forty forty percent more now, I think. So if you think tax may be due and you can't put it in ISIS for various reasons. You've got money that is earning interest , do you have to report your savings interest to HMRC? I mean, the onus is on the individual to report it. What HMRC is increasingly doing is something called simple assessments. So where they're getting so HMRC get information obviously from payroll providers about how much you earn, they also get information from banks about what people have . So increasingly people are getting these letters where they're not doing self assessment. They may get letters saying, We believe you owe this money and it will set out what HMRC think they owe and that they'll correct they'll either take that through correcting a tax code if you're POYE or they'll just ask you to pay it. Yeah. So if you're on POYE either you're earning or you've got a pension and tax is deducted anyway from that . They'll change the amount of tax that's deducted . And in most cases now as I understand it, HMRC knows how much interest we're earning because the banks and building societies report it, don't they? Yes, yes, so this is quite recent. Obviously everything's becoming more digitized and it's sort of working in everyone's favour in that sense. So if they've got all the information and that's correct and you get a letter and that seems correct then that's brilliant. Obviously sometimes it might not be correct or they may be missing some information. The onus is definitely still on the individual to get in touch with them at that point. Of course. And if you get that simple assessment letter, then you have to pay the tax it asks for. And James mentioned he's moved his money to an ISO, as you say, you can put up to twenty thousand pounds into that though. That will be coming down shortly, won't it for people under the age of sixty under pension age under sixty five? Yes, so from april twenty seven , they're reducing how much you can put into cash ISAs for people under sixty five. So currently the ISA allowance is twenty thousand pounds for cash or stocks and shares ISAS for everybody from April next year , you can only put twelve thousand pounds into a cash isa if you're under the age of sixty five. Very briefly picking an ISA. There are seven hundred forty eight on the market. How you find'd the best buy ? is the What best buy er now in Australia? Well , I would say Google it, but also it's about your needs and it might be easier for many people to go with the best one with our current bank than shopping around. Clair Walsh, Midsummer Welsh you, thank very much indeed. Well, thank goodness there's only one money box podcast to choose from. But you can choose, of course, to hear all our stories first by listening live on BBC Radio four Saturdays at noon . We love to hear from you too because it helps set our agenda, as indeed James did today by emailing us. That's MoneyBox at bbc. co . uk or you can send a message or better a voice note on WhatsApp O three hundred six seven eight three one eight three