ISAs, savings, business accounts, tax, thresholds... 18, naive, dislikes jargon. Help

tomclowes

Interesting.

Surely that means if there were a situation where you earned £6,000 a year and the tax threshold were £6,050, if you boss offered you a raise (a small one) to £6,100 it would be better not to accept the raise..?

If we assume interest is 10% on £6,000 you'd get £6,600 total, whereas on £6,100 youd get £6,588.

I know that scenario is unlikely, just trying to get an overview.


As for my tax code, I do get payslips, and have just looked. It says 'BR NONCUM'

Having looked, I am having 20% removed from the full amount in tax, and 3.3% further for National Insurance. Now this is my only job, and were I doing it for a year I would be earning over the tax threshold BUT I am doing it part time, and my contract is only 6 months. Therefore I can claim that 20% tax back cant I? And I have no clue about the National Insurance..?

With regards to shares, say each year I invest £3600 in shares. Each year I do really well, and earn £50k more. Lokolo and masonic seem to be conflicting as to the taxes on the returns.

If I invest £3,600, no tax. As it is in an ISA, no tax on dividends or if they price increases. Is that correct?

So If I invest £3600 in one stock, at years end it is worth £55k, I sell that stock and reinvest that £55k in other stocks without any further taxation? and then on top of that I have my new allowance of £3600 for the new year which i can invest in another stock?

OR on selling and having the £55k, even if i intend to immediately reinvest it in stocks, without actually taking the money out of my ISA do i still have to pay CGT on excess over £9,600?
Thanks

jem16

tomclowes wrote: »

Interesting.

Surely that means if there were a situation where you earned £6,000 a year and the tax threshold were £6,050, if you boss offered you a raise (a small one) to £6,100 it would be better not to accept the raise..?

If we assume interest is 10% on £6,000 you'd get £6,600 total, whereas on £6,100 youd get £6,588.

Not quite. You would only be paying tax on the £50 above the limit, not the whole lot.

As for my tax code, I do get payslips, and have just looked. It says 'BR NONCUM'

You should not be on a BR code unless it's a 2nd job. Did you hand in a P45 from a previous job or complete a P46?

Having looked, I am having 20% removed from the full amount in tax, and 3.3% further for National Insurance. Now this is my only job, and were I doing it for a year I would be earning over the tax threshold BUT I am doing it part time, and my contract is only 6 months. Therefore I can claim that 20% tax back cant I? And I have no clue about the National Insurance..?

Your code should be 603L !!! (Cumulative) or simply 603L. At the moment you are getting no tax-free allowances at all. Yes you will be able to claim it back but only after April 2009 and then you will need to apply to HMRC for a rebate which will take a few more weeks.

If you get it sorted now by completing a P46 you will get an automatic rebate. Why pay more now than you need to.

NI will not be refunded. You pay that if you earn over a certain amount each week/month. It's not refundable.

If I invest £3,600, no tax. As it is in an ISA, no tax on dividends or if they price increases. Is that correct?

Yes

So If I invest £3600 in one stock, at years end it is worth £55k, I sell that stock and reinvest that £55k in other stocks without any further taxation? and then on top of that I have my new allowance of £3600 for the new year which i can invest in another stock?

Yes and yes.

OR on selling and having the £55k, even if i intend to immediately reinvest it in stocks, without actually taking the money out of my ISA do i still have to pay CGT on excess over £9,600?
Thanks

No CGT tax is due as you had invested in an ISA.

CGT only comes into being if you had invested outside of an ISA. Both Masonic and Lokolo have said that.

masonic

tomclowes wrote: »

Interesting.

Surely that means if there were a situation where you earned £6,000 a year and the tax threshold were £6,050, if you boss offered you a raise (a small one) to £6,100 it would be better not to accept the raise..?

If we assume interest is 10% on £6,000 you'd get £6,600 total, whereas on £6,100 youd get £6,588.

I know that scenario is unlikely, just trying to get an overview.

I think you are confusing what happens with your salary and what happens with bank interest. If you are paid monthly, what your employer will tend to do is divide up your allowance into a monthly allowance. So that would be £502.91 per month for a typical person. Anything earned over that sum per month would be taxed at 20%. If during some months you earn less money, this might mean that you overpay tax and can claim some back, since overall you only need to pay tax on your income over £6035. (In your case, it seems you've been put on some sort of emergency tax code and so all of your income is being taxed. You should be able to get your employer to change this. It usually happens when you start a new job without a P45 and your employer assumes you have another job or your tax free allowance is already being used up).

What happens with banks is that if you are likely to have an income of more than £6035 in total (including whatever bank interest you expect to receive during that year), then the bank is required to deduct tax from all of your interest. Again, if your salary is less than £6035, some of that interest will fall within your allowance and you would end up overpaying tax. You would then be able to claim that back at the end of the tax year.

So, with your income from employment, tax is typically paid on anything earned over a monthly tax-free limit and with bank interest it is either deducted on all of your interest or none of it. In both cases, if you end up overpaying because of that, you can claim the excess back.