40% Tax Question

amethystcash

Hi there, I would appreciate some advice please.

I earn £26k a year and pay basic tax rate. Can you tell me what amount I can have in savings (assume 5% gross interest) before I will be liable to pay 40% tax.

Also can you tell me is the higher tax paid only on income above this amount - i.e. you don't all of a sudden start paying 40% tax on all your pay and savings income?

CLAPTON

you can currently have a taxable income of 40,835 before paying 40% tax.
taxable income excludes e.g. interest from ISAs and payments to pensions

so in your case you can get 14,835 before 40% tax
i.e. at 5% gross this is savings of 296,700

the 40% tax only applies to the excess over the 40,835 and NOT the total income.

soulsaver

CLAPTON wrote: »

you can currently have a taxable income of 40,835 before paying 40% tax.
taxable income excludes e.g. interest from ISAs and payments to pensions

so in your case you can get 14,835 before 40% tax
i.e. at 5% gross this is savings of 296,700

the 40% tax only applies to the excess over the 40,835 and NOT the total income.

He said 26k 'earnings', so wouldn't it be 14835+ personal allowances= c21k? = [EMAIL="420k@5%"]420k@5%[/EMAIL] ?

jennifernil

The 40% rate starts at a taxable income of £34800 this year, so I think CLAPTON is correct. Tax free allowance is normally £6035.

amethystcash

Thanks for the replies/advice. Can you tell me how does having savings in joint names with someone in joint names affect this? Does the income just get split 50/50 and then you add that to your gross salary?

Also just occurred to me, do you have to tell HMRC when you go over the tax threshold or do they get info from banks etc so they know when you're over that threshold?

Hmm, another question, what if your tax free allowance isn't £6,035? Do you just add the tax free amount to the £34, to get your own personal threshold?

Feeling very dense about this!

Lokolo

HMRC get it from your employer as the tax they take out of your salary gets paid to them, so they can work out how much you are earning etc.

For savings the banks will only deduct 20%so if you become a 40% tax payer you will have to fill in tax return form to pay back some tax from savings.

jem16

amethystcash wrote: »

Thanks for the replies/advice. Can you tell me how does having savings in joint names with someone in joint names affect this? Does the income just get split 50/50 and then you add that to your gross salary?

Normally that is what would happen.

Also just occurred to me, do you have to tell HMRC when you go over the tax threshold or do they get info from banks etc so they know when you're over that threshold?

You have to inform HMRC.

Hmm, another question, what if your tax free allowance isn't £6,035? Do you just add the tax free amount to the £34, to get your own personal threshold?

I'll assume you mean £34,800 as opposed to £34?

Basically yes. Is your tax code lower because of taxable benefits?

amethystcash

Tax code is lower because of company car.