Income tax and savings question

Daft_Monkey

I'm really sorry if this have been answered before (went through the posts in this forum but did not see anything applicable, well, went through half of them to be honest...). I know that if you are on the high bracket for income tax, the interest on your savings will be taxed at 40%. What happens if you are below the 40% tax bracket salary wise, but the interest from savings (if taken into account, i.e added to your salary) moves you over the 40% thresshold?
Any ideas?

Virginie82

You will be taxed on your salary at 22% as this is always the first slice of income assessed.

You will be taxed on your savings at higher rate (40%) at the point when your total income exceeds the upper earnings limit. This will usually be done by self assessment.

Any dividends received will be taxed at 32.5% instead of the normal 10%

Obviously use your ISA allowance ASAP and put some money into premium bonds as all winnings are tax free.

ReportInvestor

That's broadly correct.

You end up with some savings taxed @ 20% (automatically deducted by the bank) and some taxed @ 40% (the extra 20% paid by later you under self assessment - By Jan 31st 2007 to avoid a fine if you are describing your situation in the 2005/6 tax year).

Get your tax form to the Revenue by 30 September 2006 and they will calculate your tax owed for you, if you think you can trust them .

ctm_2

The extra tax will not necessarially be collected by you completing a self assessment tax return.

If you don't already complete these forms, then just write a letter to HMRC advising that you are now paying the higher rate of tax, and tell them how much interest you expect to receive in the current year. They will then add a deduction into your code to collect the extra tax due on the interest and will send you a short form every year, or every few years to check the amount they have in your code is up to date.

Daft_Monkey

Thank you all for your replies. I haven't got to that stage yet, i.e over or close to the threshold. But is good to know what I will have to do, if that day comes.