New Tax rules
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It appears we have to calculate and reduce our savings interest to our LIMIT to avoid extra tax. In your instance £1,000 maybe get some Tax free Premium Bonds and end up with a Picasso on the wall
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Silverwood wrote: »Ok - but prior to these new rules, the PA would not have been reduced by the £2000 and I would have only paid 20% on £3000 - which is £600, so I would have received £2400 - which is £1400 then I am getting now.
That is not fair.
no, its not right.
prior to this you would have received £2,400 from the bank.
now you will receive £3,000 from the bank.
your net tax bill will be reduced by £200 (20% tax saved on the £1000 allowance)
look at this example.
pension income £25,000
interest income £3,000
personal allowance : £11,000
transfer of personal allowance £1,100
OLD SYSTEM
total income £28,000
less personal allowance: -£11,000
less transfer of PA : -£1100
Income due to tax :£15,900
tax due @20% £3,180
this would have been collected as follows
tax deducted at source from bank = £600
tax deducted on pension £2,580
NEW SYSTEM
Interest income: £3000
less interest allowance : -£1000
taxable interest : £2,000
Personal allowance: £11,000
transfer of PA : £1100
less taxable interest -2000
Personal allowance left for pension £10,100
pension income 25,000
less: personal allowance left for pension -£10,100
taxable pension : £14,900
tax due at 20% : £2,980
collected all from pension
OLD TAX DUE = £3180
NEW TAX DUE = £2980
difference = £200 LESS
less tax is being paid, its just its being collected in a different manor (all from pension rather than a mix of bank and pension)0 -
But there isn't extra tax, you now pay less than before as you get £1000 tax free.It appears we have to calculate and reduce our savings interest to our LIMIT to avoid extra tax. In your instance £1,000 maybe get some Tax free Premium Bonds and end up with a Picasso on the wallRemember the saying: if it looks too good to be true it almost certainly is.0 -
in a different manor
HMRC's stately home?:)0 -
Thank you everyone.
I will re-read the lot, and try to understand it again.
I am redoing your examples with only £1000 interest to see how that works on the tax code.0 -
martinsurrey wrote: »no, its not right.
prior to this you would have received £2,400 from the bank.
now you will receive £3,000 from the bank.
your net tax bill will be reduced by £200 (20% tax saved on the £1000 allowance)
look at this example.
pension income £25,000
interest income £3,000
personal allowance : £11,000
transfer of personal allowance £1,100
OLD SYSTEM
total income £28,000
less personal allowance: -£11,000
less transfer of PA : -£1100
Income due to tax :£15,900
tax due @20% £3,180
this would have been collected as follows
tax deducted at source from bank = £600
tax deducted on pension £2,580
NEW SYSTEM
Interest income: £3000
less interest allowance : -£1000
taxable interest : £2,000
Personal allowance: £11,000
transfer of PA : £1100
less taxable interest -2000
Personal allowance left for pension £10,100
pension income 25,000
less: personal allowance left for pension -£10,100
taxable pension : £14,900
tax due at 20% : £2,980
collected all from pension
OLD TAX DUE = £3180
NEW TAX DUE = £2980
difference = £200 LESS
less tax is being paid, its just its being collected in a different manor (all from pension rather than a mix of bank and pension)
Ok so.....
Old system
Interest £3000
Tax 20% £600
Receive £2400
PA £11000
Transfer PA £1100
Total £12100
Income £25,000
Minus PA £12900
Tax 20% £2580
= £10320
Total income £12100+£10320+£2400 = £24820
New System
PA same - £12900 + £1000 = £13900
Income £25,000+£3000= £28,000
PA-Income = £14100
20% tax £2820
=£11280
£11280+£13900= £25180
Income on old system - £24820
Income on new system -£25180
Save £360..correct?0 -
Silverwood wrote: »Ok so.....
Old system
Interest £3000
Tax 20% £600
Receive £2400
PA £11000
Transfer PA £1100
Total £12100
Income £25,000
Minus PA £12900
Tax 20% £2580
= £10320
Total income £12100+£10320+£2400 = £24820
New System
PA same - £12900 + £1000 = £13900 ERROR PA is £12,100 see lines above (I've bolded it), difference is £800, result £160 undercalculation of tax
Income £25,000+£3000= £28,000
PA-Income = £14100
20% tax £2820
=£11280
£11280+£13900= £25180
Income on old system - £24820
Income on new system -£25180
Save £360..correct?
see my correction above,
your mistake under calculates the new world tax by £160 (wrong personal allowance used), bringing you back to my £200 difference.0
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