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October Questions and Answers
Newsletter issue – October 2026
Q: I'm in a marriage where one of us is not earning and one still is. If we move money between our personal savings accounts, who is treated as earning the interest income to work out the tax?
A: As the accounts are not joint, HMRC treats the movement of money between spouses' personal savings accounts as an outright, tax-free gift. It also states that when money is moved between individual savings accounts, the person whose name is on the account is responsible for any tax due on the interest earned.
It is worth noting that interest earnt in a joint account is split 50/50 between the people named on the account when calculating the tax due.
Basic rate taxpayers can earn up to £1,000 interest a year, tax-free. For higher rate taxpayers it is £500 and additional rate taxpayers get no allowance. If your income is below the personal allowance threshold of £12,570, you can earn an extra £5,000 of interest tax-free.
Q: I've had many jobs in my career which means I have multiple, but small, pensions. I've heard it might be tax efficient for me to use the 'small pension pots' rule. Can you advise?
A: The small pots rule allows you to cash in defined contribution pension pots worth £10k or less as a single lump sum (up to a maximum of three). The tax treatment is the same as other withdrawal methods in that 25% is tax free and 75% is taxed at your marginal rate.
However, it may be more tax efficient for you to cash in smaller pension pots and then make larger contributions to your main pension before retirement. You lose 20% to tax on the withdrawals but gain tax relief when you contribute back (as well as eliminating ongoing charges on multiple pots).
The key benefit is that this rule does not trigger the money purchase annual allowance (MPAA), so you can still contribute up to £60k a year afterwards. This is invaluable if you are still working and contributing to a pension but want to consolidate other pots.
If you'd like to find out if this could benefit you, please get in touch with us.
Q: I run my own limited company and need to withdraw a £40k lump sum (on top of my annual 'salary' of £30k). What's the best way to do this, to incur the least amount of tax?
A: There are four main options to make this withdrawal, each having different implications on not only your tax position, but also your business' cash flow.
Option 1 - take the full £40k as a dividend in this tax year. Part may fall into the basic-rate dividend band and part into the higher-rate dividend band depending on total taxable income. Dividend tax rates for 2026/27 are 10.75% (basic rate) and 35.75% (higher rate).
Option 2 - take the £40k as a dividend split evenly over two tax years (tax payable on first dividend by 31 Jan 2028, second by 31 Jan 2029 both at the basic rate of 10.75%)
Option 3 - take the full £40k as a director's loan (s455 tax payable at 35.75% by the company nine months and one day after your financial year-end; benefit-in-kind charge payable by you and Class 1 National insurance deducted and paid)
Option 4 - take a dividend and director's loan combination (tax rates and when payable depends on the split, but this tends to be the cheapest option)
It is important to state that the cheapest tax option may not be the best decision for your company; it should align with your personal and business goals.
If you'd like to run through the numbers of each option, please get in touch with us.
What our clients say about us...
"Paul has provided accountancy services to my company for 2 years now. I can recommend Paul very highly; his skills as an accountant are highly detailed and professional and he is always available to provide advice. One aspect of the way Paul works that I greatly appreciate is a preference to meet face to face when there is a detailed conversation to be had. I personally find this more productive and is a benefit of working with a small accountancy firm that you wouldn't get with the large faceless providers."
ALISTAIR FAIRWEATHER - PROGRAMME & PROJECT MANAGER, DELIVERING/RESCUING I.T. 7 BUSINESS CHANGE WITH BUDGETS UPTO £50M INC SUPPIER MANAGEMENT
"I couldn't ask for more from Paul as an Accountant. Paul has been accountant to Work Relief Charity Recruitment for just over a year now and is proving an invaluable asset. Accurate, knowledgeable, flexible with an emphasis on service delivery, I would recommend Paul's services to any organisation looking for an accounts professional."
Neil Price - Managing Director at Work Relief Charity Recruitment
"Paul was a referral from a family member when I started my business 2 years ago. As this was the first time I had ever run my own company I was totally clueless over the financial side of matters and was worried that I may have made mistakes in any of my accounting. I needn't have worried as after enaging Paul for a set monthly fee he was always there on the end of the phone for all sorts of questions I had and no matter how trivial they were Paul gave me all the information I required and more and did an excellent and painless job at the end of my first year! Couldn't ask for any better to be honest. Just two words - hire him!!!"
Lee Westrap MBCS - Director - Bulldog IT Services
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