The new personal savings allowance means some will be better off earning LESS interes

The people this may catch out are those higher rate tax payers who have only had 20% tax deducted from their savings and haven't paid the extra tax due. So HMRC will be able to go back a few years & get the back tax. After all a higher rate tax payer is more likely to have savings than a basic rate tax payer does. Then over the year they will have to pay the tax as they go rather than at the end of the year. They may not put the tax rates up but they can certainly try to get them in earlier.

vacheron wrote: »

This is the part I just cannot reconcile....

The HMRCs own Website (link) clearly states that the amount of personal savings allowance depends on my "adjusted net income".

The HMRC definition of "adjusted net income" (link) includes savings interest income, but then allows the deduction of the "personal savings allowance" tax relief.

How do I know which amount of personal savings allowance tax relief to deduct (£1000 or £500) as I will not know if my "adjusted net income" exceeds £43,000 until the calculation is complete?

In my mind, this ends up as a total catch 22 (or in excel terms, a "circular reference") situation if your savings income is between £500 and £1000 and your non savings income exists in the £42,500-£43,000 "twilight zone"?

It looks like they've changed the factsheet - maybe some smarta**e trying to "simplify" it but instead made it more complicated!

The previous factsheet (which I can't find now) made it clear that you are deemed a higher rate taxpayer for the purposes of this if you would have paid higher rate tax had the PSA not existed.

The legislation appears to still reflect this: http://www.legislation.gov.uk/ukpga/2016/24/section/4/enacted

Hi zagfiles.

I was surprised this morning when I re-loaded the HMRC page I linked to yesterday to find that the savings allowance tax relief (along with the dividends allowance as well) have now been deleted less than 24 hours after I posted the error on here. (I believe you must have read that yesterday too)?

I'm glad it has been corrected, but what concerns me is that they have completely omitted to list an edit which removed 2 of the 4 tax relief items in the "page updated" details at the bottom which still show the last update was on the 4th of February 2016!

The wayback machine tells a different story though as they have an archive from the 17th of August 2016 where it is clearly listed. Sneaky beggars!

As I didn't inform them perhaps someone else reading the thread did. Either that or big brother is watching us! :undecided :shhh:

This is not such an acedemic question as some have suggested. Since I am retired and have a variable drawdown pension, each year, I wait until close to the end of the tax year in order to determine the maximum income I can withdraw from my pension without becoming a higher rate tax payer. The new Personal Savings Allowance makes it even more important to remain within the basic rate band.

I contacted HMRC via their web chat service and this is a partial transcript of the conversation:

---QUOTE---
ANDREW DUNN
Will the new personal savings allowance in 2016/17 be added to the Personal allowance for the purpose of determining the level at which 40% tax is payable? 7:32 PM

You are now chatting with Zeshaan

ZESHAAN

Hello. Welcome to HMRC webchat. You’re speaking with Zeshaan. Are you contacting HMRC about your own tax affairs today? 7:33 PM

ANDREW DUNN
Yes 7:33 PM

ZESHAAN

To answer your question, the new personal savings allowance is a separate allowance purely for savings income. This is entirely seperate from the personal allowance and has no bearing on your normal income tax for your regular income. 7:34 PM

ZESHAAN

Please see the following link for more information - (had to delete link)
7:35 PM

...snip...

ANDREW DUNN
Can I give an example? If I have pension of £43000, and savings income of £1000, what will be my top rate of tax? 7:36 PM

ZESHAAN

Ok. To help me to deal with your query, I just need you to answer a few security questions.

...snip...

ZESHAAN

For the hypothetical example you provided, if you earned exactly £43000 and had the standard £11000 personal allowance (without any deductions such as a state pension or any taxable benefits), then you would be entitled to the full £1000 personal savings allowance which would cover that amount of interest. However, I can see on your record you do not have the standard personal allowance of £11000. 7:50 PM

...snip...
---END QUOTE---

So, The statement from HMRC is at odds with article on MSE. Who should I believe? MSE or HMRC? I'm perfectly willing accept to that the HMRC advisor didn't know what he was talking about. It would not be the first time I've had bad information from them. But perhaps MSE could confirm that the article is definitely a correct interpretation of the rules?