Would I Have to Pay Tax on My Savings?
I moved back England in May 2008, I have been living in Australia for the last 6 years. I have a house in Australia that I am currently trying to sell, and have had an offer of $380,000. This works out about £135,000 once I take into account mortgage, fees and convertion.However we have just been told that because we have not been in the country long enough we dont qualify for a mortgage from any lender. If I was to put the lump sum of money into a savings account untill we can get a mortgage will I have to pay tax on it? Will I have to pay tax on the interest I earn from it?
Getting a mortgage is very difficult for anyone in the current climate, but it sounds as if you are in a virtually impossible situation.
To address your first question, you will indeed have to pay interest on any income that you make from a savings account. The amount that you pay in tax will depend on how well your savings perform; if you make up to £2,440 in the 2009-10 tax year you will be subject to savings tax at 10%. If your savings income is between £2,441 and £37,400 then it will be taxed at 20%, and if it exceeds this you will be taxed at 40%.
You should remember, however, that tax is normally deducted from savings interest before you even receive it. As such, the amount that you make each month will already be taxed. The exception to this is if you are paying tax at the higher rate of 40%. In these circumstances you will be obliged to pay HM Revenue and Customs the difference.
Perhaps more importantly, you should consider whether putting your money in a savings account is a good idea at all in the current climate. Very few savings accounts are keeping up with inflation, meaning that you will actually lose money while it is sitting in an account. Even though you may get a fairly decent rate for £135,000, you should speak to a financial advisor about other ways of investing or safeguarding your cash.There is a huge variety of investments available, some of which are safer than others; for example, you may consider buying gold. Investors keen to keep their money safe, and see a decent return, are flocking to gold; this is in turn pushing the price up, and this trend may well continue. As you have a fairly large sum to look after, you should think about splitting your money across a few asset classes; you may put some into savings, and the rest into a variety of income-yielding investments.
In short, therefore, the answer to your question is 'yes', you will have to pay tax on savings income. However, you should consider whether a savings account is really the best place for your money.