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  • FIRST POST
    • dangermoose
    • By dangermoose 16th May 17, 5:30 PM
    • 17Posts
    • 1Thanks
    dangermoose
    Personal Savings Allowance
    • #1
    • 16th May 17, 5:30 PM
    Personal Savings Allowance 16th May 17 at 5:30 PM
    With a theoretical salary of £44499 and £1000 in savings interest:

    how much tax would you pay on the savings interest?
Page 1
    • bowlhead99
    • By bowlhead99 16th May 17, 5:41 PM
    • 6,994 Posts
    • 12,590 Thanks
    bowlhead99
    • #2
    • 16th May 17, 5:41 PM
    • #2
    • 16th May 17, 5:41 PM
    I'll toss a coin and say £200. It'll be right give or take a couple of hundred quid.
    • isasmurf
    • By isasmurf 16th May 17, 5:48 PM
    • 1,718 Posts
    • 738 Thanks
    isasmurf
    • #3
    • 16th May 17, 5:48 PM
    • #3
    • 16th May 17, 5:48 PM
    Can't say without knowing the tax code
    • RG2015
    • By RG2015 16th May 17, 5:54 PM
    • 592 Posts
    • 312 Thanks
    RG2015
    • #4
    • 16th May 17, 5:54 PM
    • #4
    • 16th May 17, 5:54 PM
    Salaries up to £45,000 are taxed at the basic rate of 20% and basic rate taxpayers can earn tax free interest up to £1,000.

    Assuming there are no other personal tax adjustments then no tax will be payable on the interest.

    Edit 21:38
    After reading Grey Gym Sock's post I have realised that I am wrong. The savings interest needs to be added to the salary to determine if the higher rate threshold has been exceeded.
    Last edited by RG2015; 16-05-2017 at 9:38 PM.
    • Eco Miser
    • By Eco Miser 16th May 17, 6:16 PM
    • 3,224 Posts
    • 2,989 Thanks
    Eco Miser
    • #5
    • 16th May 17, 6:16 PM
    • #5
    • 16th May 17, 6:16 PM
    With a theoretical salary of £44499 and £1000 in savings interest:

    how much tax would you pay on the savings interest?
    Originally posted by dangermoose
    Which year?
    Here's an explanation for 2016/7 For 2017/8 increase the allowances appropriately.
    Eco Miser
    Saving money for well over half a century
    • grey gym sock
    • By grey gym sock 16th May 17, 7:15 PM
    • 4,131 Posts
    • 3,644 Thanks
    grey gym sock
    • #6
    • 16th May 17, 7:15 PM
    • #6
    • 16th May 17, 7:15 PM
    the personal savings allowance turns out not to be an allowance at all, but a zero-rate tax band (which runs parallel with the basic or higher rate band).

    total taxable income is £45,499, which exceeds the higher-rate threshold (£43,000 in 2016/17; £45,000 in 2017/18), so the PSA is only £500.

    in 2016/17, that leaves £500 interest taxed at 40%, so £200 tax on interest.

    in 2017/18, it leaves £1 interest taxed at 20%, and £499 taxed at 40%, so £199.80 tax on interest.
    • Dazed and confused
    • By Dazed and confused 16th May 17, 9:35 PM
    • 1,950 Posts
    • 876 Thanks
    Dazed and confused
    • #7
    • 16th May 17, 9:35 PM
    • #7
    • 16th May 17, 9:35 PM
    RG2015

    Salaries up to £45,000 are taxed at the basic rate of 20% and basic rate taxpayers can earn tax free interest up to £1,000.

    Assuming there are no other personal tax adjustments then no tax will be payable on the interest.


    You have misunderstood the mechanics of the personal savings allowance. You have to consider total taxable income first to establish the maximum PSA amount for the year.

    Once that is known you work out the tax due. The phrase tax free interest is a complete misconception as far as the PSA is concerned. Unless you are talking about ISA's and similar non taxable interest all interest remains taxable just as it did pretty April 2016.

    Assuming the op is referring to the current tax year and is getting the basic personal allowance and has no other allowances then I agree with grey gym sock, the tax due on the interest is £199.80
    Last edited by Dazed and confused; 16-05-2017 at 9:37 PM.
    • RG2015
    • By RG2015 16th May 17, 9:43 PM
    • 592 Posts
    • 312 Thanks
    RG2015
    • #8
    • 16th May 17, 9:43 PM
    • #8
    • 16th May 17, 9:43 PM
    Thanks Dazed and confused, I realised this after reading Grey Gym Sock's post and edited mine to acknowledge my mistake (before reading your post!)

    I also understand now that my use of the phrase tax free interest is incorrect and potentially misleading. However, as my annual income plus £1,000 is well below the higher rate threshold I will qualify for the full £1,000 PSA.
    Last edited by RG2015; 16-05-2017 at 9:53 PM.
    • Dazed and confused
    • By Dazed and confused 16th May 17, 9:49 PM
    • 1,950 Posts
    • 876 Thanks
    Dazed and confused
    • #9
    • 16th May 17, 9:49 PM
    • #9
    • 16th May 17, 9:49 PM
    I think this will be the first of many such posts over the next few months as people understand exactly how this "allowance" really works!!
    • soulsaver
    • By soulsaver 17th May 17, 1:24 AM
    • 1,490 Posts
    • 540 Thanks
    soulsaver
    I think this will be the first of many such posts over the next few months as people understand exactly how this "allowance" really works!!
    Originally posted by Dazed and confused
    Yep well when you get Martin Lewis apparently calling it 'interest paid tax free...' you'll now be even less surprised.. No1 in 'savings need to knows..' in the link:

    http://www.moneysavingexpert.com/savings/savings-accounts-best-interest?_ga=2.178341284.1269337309.1494980269-679811915.1492047907
    Last edited by soulsaver; 17-05-2017 at 1:27 AM.
    • Eco Miser
    • By Eco Miser 17th May 17, 11:43 AM
    • 3,224 Posts
    • 2,989 Thanks
    Eco Miser
    Zero percent tax ... tax-free ... tax exempt.
    It takes a certain mind-set to realise these are different, let alone know how they differ. So, yes, there are going to be many more posts on the subject.
    Eco Miser
    Saving money for well over half a century
    • eskbanker
    • By eskbanker 17th May 17, 11:54 AM
    • 5,890 Posts
    • 5,852 Thanks
    eskbanker
    Yep well when you get Martin Lewis apparently calling it 'interest paid tax free...' you'll now be even less surprised.. No1 in 'savings need to knows..' in the link:

    http://www.moneysavingexpert.com/savings/savings-accounts-best-interest?_ga=2.178341284.1269337309.1494980269-679811915.1492047907
    Originally posted by soulsaver
    To be fair, that article is a high-level overview of all savings matters and includes a link to a PSA-specific piece, which in turn links to a Martin blog, both of which go into more detail about the distinction between 'tax-free' and 'taxed at 0%', which, when all is said and done, is only going to be an issue for a relatively small subset of savers who are close to tax thresholds.

    So, yes, the 'tax free' soundbite is inaccurate but for most it's close enough....
    • dangermoose
    • By dangermoose 17th May 17, 12:45 PM
    • 17 Posts
    • 1 Thanks
    dangermoose
    It's a strange one alright!

    "With a theoretical salary of £44499 and £1000 in savings interest:"

    Total taxable income = 44499 + 1000 = 45499
    This means the higher rate tax-payer Personal Savings Allowance applies:

    i.e. PSA = £500 savings interest at 0%
    £500 savings interest remains to be taxed

    Basic rate up to £45000, so:
    Salary = £44499 @ 20% plus £500 savings interest @ 20%
    takes us to £44999 in total @ 20% basic rate

    £45,000 limit for 40% rate was not reached, so we have a higher rate taxpayer who only pays tax at the basic rate!

    Go figure! :-)
    • Dazed and confused
    • By Dazed and confused 17th May 17, 11:23 PM
    • 1,950 Posts
    • 876 Thanks
    Dazed and confused
    dangermoose

    You've misunderstood how the PSA works. 40% tax is payable in this situation.

    2017:18
    Salary 44499 less PA 11500 leaves 32999 to be taxed
    Interest of 1000 is taxed
    £500 x 0% (PSA band)
    £1 x 20% (basic rate)
    £499 x 40% (higher rate)

    Where there is some basic rate band left over then the PSA uses that up potentially pushing some of the income up into the higher rate band.

    Clever bloke that George Osborne!
    • xylophone
    • By xylophone 18th May 17, 12:14 AM
    • 23,647 Posts
    • 13,779 Thanks
    xylophone
    http://www.taxvol.org.uk/about-tax/entitled-10-band-savings-interest/
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