40% tax on savings

le_loup

n_farrow wrote: »

NSI is that premium bonds?

No ... a bad idea.
NS&I have from time to time, offers of tax free savings. Most importantly, Index Linked Bonds.

jem16

n_farrow wrote: »

Thanks Jem. I forgot to mention that im paid via PAYE do i still have to tell the taxman and the banks or will they know automatically?

The banks don't know your income so they take 20% tax off everyone (apart from those registering as non taxpayers).

If you have income which you know is not being taxed fully then you must inform HMRC. They will eventually find out as the banks report interest paid to HMRC but by then you would have a big bill to pay so best to do it at the right time.

If you're only just crossing into higher rate tax pay a bit more into your pension to keep you below it.

Credit-Crunched

I agree with jem16, if you are literally just in the 40% bracket, a small contribution would increase your upper threshold.



£37,400 + Personal Allowance (£7,475) + gross up contributions of say £150 per month

= £37,400 + £7,475 + £1800 = £46,675 before you are a HR tax payer.

Sometimes a small contribution to a pension scheme can save a lot of money on interest.

Also make sure that you have fully contributed your Cash ISA allowances and on the 6th April you fill up the new tax year again.

If you were not saving for a house i would say S&S isa, but due to time scales involved stick to cash ISA's.

Are you married? If so make use of your partners ISA's if it is joint money to a house

pqrdef

Credit-Crunched wrote: »

Sometimes a small contribution to a pension scheme can save a lot of money on interest.

A small contribution to a pension scheme can save you the amount of tax you would have paid on the money going into the pension. That's all.

atush

pqrdef wrote: »

A small contribution to a pension scheme can save you the amount of tax you would have paid on the money going into the pension. That's all.

Not quite.

A small amt of pension contribs of less than the amt you are over your HRTax limit will save you half of the tax payable on the interest of any income (incl interest) over the limit for HRtax.

Credit-Crunched

pqrdef wrote: »

A small contribution to a pension scheme can save you the amount of tax you would have paid on the money going into the pension. That's all.

As Atush pointed out, if your pension contributions up the ceiling on your BRT bracket and prevent you becoming a HR tax payer, then I personally feel that the 20% tax saved on your savings and investments represents a significant saving.

Especially if we are talking larger sums of money i.e house deposits.

Please do your research before posting incorrect info.

pqrdef

atush wrote: »

A small amt of pension contribs of less than the amt you are over your HRTax limit will save you half of the tax payable on the interest of any income (incl interest) over the limit for HRtax.

?

If you don't want to pay any HR tax, the amount you pay into the pension will have to be enough to reduce your total gross income below the threshold. That's not just salary, it's total gross income including grossed-up savings interest.

Then, as I said, the amount you save will be the amount you would have paid on this pension contribution. Bear in mind that if your total gross income is going over the threshold, you have to notify the taxman, who will reduce your PAYE code, so that you'll be paying higher rate on some of your salary if you don't divert it into the pension.

Unless you're thinking of not coming clean with the taxman and hoping he won't notice.

oldvicar

Putting money into pensions may save on tax, but doesn't exactly help save up for a house depostit!

Take, eg. £100 gross interest earned just over the HRT threshold.

Pay 40% tax, and keep £60 towards the house deposit

OR

Pay effectively £100 gross into a pension and get to pay only £20 tax on interest earned in effect keeping only £20 towards the house deposit.

Swapping £40 of potential house deposit for an extra £100 in the pension pot may seem like a good deal - but it doesn't help buy the house.