Reg Saver - Tax Calculation

going2die_rich

I am a basic tax payer (22%) but come January I have a job offer which will push me into the higher tax band.

Does anyone know how this tax will be worked out on my regular savings accounts that will mature next year from starting it as a normal tax payer but ending as a higher tax payer?

My understanding is that because interest is paid annually, it will be your tax status when it matures. Anyone know for sure?

oldfella

you need to calculate your tax position over the whole tax year - so if you earn more than around £38K in 2006/7, then you will start paying 40% on the margin above that

Mike

Paul_Herring

going2die_rich wrote:

I am a basic tax payer (22%) but come January I have a job offer which will push me into the higher tax band.

Does anyone know how this tax will be worked out on my regular savings accounts that will mature next year from starting it as a normal tax payer but ending as a higher tax payer?

My understanding is that because interest is paid annually, it will be your tax status when it matures. Anyone know for sure?

All interest you receive during the financial tax year in which you are in the 40% tax bracket will need to have a further 20% deducted. It doesn't matter how frequently (monthly, annually) the interest is paid, all interest in that tax year will need the deduction.

Edit: Erm - not quite all - any interest you've received in any tax free vehicles (cash ISAs e.g.) will still remain tax free.

oldfella

All interest you receive during the financial tax year in which you are in the 40% tax bracket will need to have a further 20% deducted.

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I dont believe it works like that - once you are in the 22% tax bracket, you take the amount of savings interest and that is taxed at 20%; the remaining earnings up to the 40% entry point are taxed at 22%; then anything over that is taxed at 40%.

Mike

Henry_Blofeld

As people have said, you will now pay tax on your interest at 40% as it is treated as your 'top slice' of income.
Now you're in this position it might be worth rethinking your savings strategy to move to tax free investments e.g National Savings Bonds. I am assuming that you are already filling your ISA limit each year.

Now you are a higher rate taxpayer.......

- £1,000 in a NSB at 3.6% will net you £36

- £1,000 in a standard account at 5% less 40% tax will now only net you £30 (previously £40).

Might be worth considering.

Paul_Herring

oldfella wrote:

All interest you receive during the financial tax year in which you are in the 40% tax bracket will need to have a further 20% deducted.

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I dont believe it works like that - once you are in the 22% tax bracket, you take the amount of savings interest and that is taxed at 20%; the remaining earnings up to the 40% entry point are taxed at 22%; then anything over that is taxed at 40%.

Mike

Savings aren't considered like regular income - anyone in the 22% tax bracket pays 20% tax. Anyone in the 40% bracket pays 40%. As stated before, interest is in the top slice, so if you're normally in the 22% bracket, and the interest takes you into the 40%, you pay 40% on the bit over the limit.

gt94sss2

going2die_rich wrote:

Does anyone know how this tax will be worked out on my regular savings accounts that will mature next year from starting it as a normal tax payer but ending as a higher tax payer?

My understanding is that because interest is paid annually, it will be your tax status when it matures. Anyone know for sure?

The bank will pay you interest with basic rate(20%) tax deducted - you will then have to fill in a tax return (at the end of the financial year) and the Inland Revenue will tell you how much extra you have to pay.. (normally another 20%)

And yes, if you are a higher rate tax payer in the year that your regular saver matures (and its an annual interest payment) then 40% will be eventually payable..

Regards
Sunil