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From a non tax payer to ?
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Yes she probably would, but I am really wanting to know how the new Tax system would work as we are at the moment.0
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Have a look at the link in post 9.
And if your wife is entitled to claim a state pension on your contributions she should do so?0 -
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The £5,000 isn't the Personal Savings Allowance.I understand the £11,000 (Personal Allowance) and £5,000 (Personal Savings Allowance) but where does the £1,000 come from?
The £5000 is a band of income sitting on top of your annual Personal Allowance which is covered by 'the starting rate of tax for savings income, of 0%'. If that band isn't used up by salary or pension or business income, you can use it for interest income and pay only 0% instead of 20%.
So with the Annual Allowance and the 'starting rate of 0% on savings income' band, there will be some people paying no tax on up to £16k.
*Then* on top of that, the Personal Savings Allowance is the term used for an annual allowance for savings (interest) income starting from tomorrow's 2016/17 tax year, which allows you to get £1000 of interest tax free if you're earning enough money that would otherwaise have made you pay 20% tax on it. Or £500 tax free for people on higher rate 40% tax, or £0 tax free for people on even higher rate 45% tax.
A person can make use of their £11k personal allowance and £5k 0% band for savings income and £1k personal savings allowance, getting £17k total without paying tax, if at least £6k of the income was interest income (i.e. enough to use up all of the £5k 0% band, and all of the £1k allowance).
For example, a person earning £17k of which £9k was pensions would find they still have £2k of their £11k annual allowance left after their pension used up most of it, and that £2k could be filled with interest income. And then they could get another £5k of interest income within the £5k starting rate band, and then they could get another £1k of interest income in their personal savings allowance, for £17k total and no tax bill.
Alternatively if the person was earning £17k of whikh £14k was pensions, they would get the first £11k of pension tax free because it fits in the annual allowance, and then they would pay normal income tax on the remaining £3k of pension. But as the pension only used up £3k of the first '£5k band available for savings interest at 0%', they can have £2k of savings interest which fits into that 0% band. And then they could get another £1k of interest income in their personal savings allowance.
So, the total amount of interest income that someone can get tax free will depend on their personal circumstances, but basically there's three places to earn interest tax free: personal allowance, 0% band, personal savings allowance. Obviously after that you could get some other interest income tax free by using ISAs.0 -
Many thanks for the detailed explanation which I think I now understand!
Your summary in the third last paragraph is excellent even though I am still a little unsure why the £6k could not be classed together.0 -
http://www.taxvol.org.uk/about-tax/entitled-10-band-savings-interest/
"The easiest way to establish if you qualify is to add up your non- savings income (ignoring dividends), if it is below or within your personal allowance plus £5,000 then the Starting Rate for Savings will apply.
If this doesn’t cover all of your savings income then apply the Personal Savings Allowance. To determine which rate to use add up all of your taxable income including savings income, but ignoring dividends. If it's £43,000 or less then use £1,000, if between £43,001 and £150,000, use £500.
The following examples for 2106/17 explain the interactions between the SR and the PSA.
Example 1 - Alex is 71 and has non savings income of £11,000. In addition he receives £600 in savings income. His non savings income is below £16,000 and the savings income is within the 0% savings rate of £5000. He doesn’t need to pay tax on his savings and doesn’t have to do anything.
Example 2 - If Alex’s non savings income is £15,600, it is still below the £16,000 threshold and £400 of his savings income is covered by the 0% savings rate. The remaining £200 is covered by the Personal Savings Allowance. He doesn’t need to pay tax on his savings and doesn’t have to do anything.
Example 3 - If Alex’s non savings income is between £16,000 and £43,000, he will not be eligible for the 0% Starting Rate but his savings income will be covered by the Personal Savings Allowance of £1,000. He doesn’t need to pay tax on his savings and doesn’t have to do anything.
Example 4 - If Alex’s non savings income is between £43,001 and £150,000 he will not be eligible for the 0% starting rate and only £500 of his savings income will be covered by the Personal Savings Allowance. The remaining £100 is taxable at 40% and he will need to contact HMRC to arrange payment."0 -
even though I am still a little unsure why the £6k could not be classed together.
It can't be lumped together because the £6k is two separate and independent reliefs.
The £5k starting rate band which is currently set at 0% (having been smaller, and 10%, in recent past) is targeted at the people with low total income who are getting some savings income within that total income. Depending on how much "earned" income you have (job, pension, business) you might have all of that £5k band available for savings, or none of it, or some of it (e.g. my second-to-last paragraph in post 16 above).
By contrast, the £1k personal savings allowance is something that almost everyone can use for their savings income. If you earn, say, £30k from a job, and are nowhere near being able to access the £5k starting rate band which exists for savings income of low earners, because you filled that £11k-£16k band with normal taxed income from your job or business or pension, you can still have the £1k personal savings allowance money. Same principle for a £50k earner - except their personal savings allowance is only £500.
So, you can't just lump the £5k and £1k together and say everyone gets up to £6k of interest income completely tax free, because quite clearly they don't, because some people earn too much to get the £5k element. The £5k and £1k are two separate reliefs with two separate rules.0 -
Bowlhead talks about £18k several times, where does this figure come from please. £11k +£5k +£1k =£17k where does £18k come in?
Thanks0 -
bjbyorkshire wrote: »Bowlhead talks about £18k several times, where does this figure come from please. £11k +£5k +£1k =£17k where does £18k come in?
Thanks
18k was used as an EXAMPLE to show how things worked in combination with paying into a pension0
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