Higher Rate Tax Band

MoneyGeoff · 18 March 2018 at 1:43PM

If I earn £50K this year and pay £4K (ie £5K gross) into a SIPP, and my wife is a non tax payer, then is it correct to say that:

1. My wife can apply for the marriage tax allowance
2. My personal savings allowance is £1,000 rather than £500

ie are both MA and PSA are based on tax paid rather than taxable income?

Dazed_and_confused · 18 March 2018 at 9:33PM

For 2017:18 which country are you considered resident in for tax purposes?

And is the £50k the total of all your taxable income? Taxable salary, savings interest, company benefits, dividends etc.

Providing she doesn't pay higher rate tax then your wife can almost certainly apply for Marriage Allowance, she doesn't have to be a non taxpayer to apply.

MoneyGeoff · 18 March 2018 at 10:39PM

I'm resident in the UK. The £50,000 is everything except savings interest. The savings interest is £800.

Thanks for confirming regarding MTA. I'll pay £4,000 into a SIPP and ask the wife to claim MTA after I've done my self assessment in April.

So I'm hoping also that the £800 savings interest will be covered under the personal savings allowance.

molerat · 18 March 2018 at 10:54PM

MoneyGeoff wrote: »

I'm resident in the UK.

Not as straightforward as that anymore

MoneyGeoff · 18 March 2018 at 10:59PM

molerat wrote: »

Not as straightforward as that anymore

I was born in the UK and have lived here my entire life. Not sure what this has got to do with the question.

Dazed_and_confused · 18 March 2018 at 11:36PM

Scotland has its own tax rates and the higher rate threshold for earned income is less than in the rest of the UK.

I very much doubt your plan will work as your taxable income is £50,800 not £50,000 so even if you live outside of Scotland (but somewhere else in the rest of the UK) you will still be liable to higher rate tax (based on the info provided).

Tom99 · 18 March 2018 at 11:41PM

Not sure but I think you need to add your savings and any dividend income before working out if you are a higher rate taxpayer. So at the moment your gross income is £50,800 less grossed up pension of £5,000 = adjusted net income of £45,800 so you only get £500 savings allowance.

xylophone · 18 March 2018 at 11:43PM

I was born in the UK

https://en.wikipedia.org/wiki/Taxation_in_the_United_Kingdom

Income tax is the single largest source of government revenue in the United Kingdom, making up about 30 percent of the total, followed by National Insurance contributions at around 20 percent.[19] More than 25% of all income tax revenue is paid by the top 1% of taxpayers, i.e. taxpayers with the highest incomes and 90% of all income tax revenue is paid by the top 50% of taxpayers with the highest incomes.[20] The Scottish Parliament has full control over income tax rates and thresholds on all non-savings and non-dividend income liable for tax by taxpayers resident in Scotland.[21]

singhini · 19 March 2018 at 1:43AM

Tom99 wrote: »

Not sure but I think you need to add your savings and any dividend income before working out if you are a higher rate taxpayer. So at the moment your gross income is £50,800 less grossed up pension of £5,000 = adjusted net income of £45,800 so you only get £500 savings allowance.

I agree with Tom99

However i think this is a good question OP, I don't understand how HMRC calculate it either?

the way I approached your situation was to say total income = £50,800 less Tax free amount of £11,500 = £39,300 taxable as £33,000 @ 20% and £6,300 @ 40% (however HMRC will expand your 20% tax band from £33,000 to £38,000 to allow for your SIPP pension contributions).

Thus I make it your £50,800 will be treaded like this:
£11,500 = tax free
£38,000 @ 20%
£1,300 @ 40%

Or is it £50,000 + £800, thus it will be treated like this:
£11,500 = tax free
£38,000 @ 20%
£500 @ 40%
£300 @ 40% (i.e. £800 - £500 PSA allowance)

If its the 2nd set of calculations and if the OP was to put an extra £500 into his SIPP thus paying no tax at 40%, would he then get £1,000 PSA and thus pay no tax on that either?

MoneyGeoff · 19 March 2018 at 9:14AM

Thanks Tom/singhini you are right, the interest can push you into the next tax band.

So what I need to do is:

salary = £50,000
interest = £800
sipp = -£5,800 (gross)

income = £45,000
psa = -£800
0% tax = -£11,500

basic rate tax on £32,700 = £6540

whereas if I only pay £5K into the sipp it would be:

salary = £50,000
interest = £800
sipp = -£5,000 (gross)

income = £45,800
psa = -£500
0% tax = -£11,500

basic rate tax on £33,500 = £6700
higher rate tax on £300 = £120

total tax = £6820

MoneyGeoff · 19 March 2018 at 1:25PM

It's a bit annoying that the Santander 123 pays £300 per year with a £60 fee because tax is payable on the whole £300. Would be better if they just paid £240 interest.

Higher Rate Tax Band

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