Tax on Interest

terry999

Hi

I'm a lower rate tax payer.

I managed to get a very good savings rate because I fixed it for several years before 2008. These bonds have matured and all the interest was paid in tax year 11/12. This interest + some dividends + my wages has put me in the higher rate tax bracket - 40%.

I know I will have to pay 40% on this interest. Will it be for the whole amount of interest or the amount that puts me in the 40% bracket i.e. anything over 42,475

I hope its the later. I even received a bonus at work this year - everything in one year!!!

Masomnia

Aye, just the amount over the threshold.

I think you'll have to inform HMRC.

CLAPTON

you only pay 40% on the amount over 42,475

bear in mind that if you make payments to a pension they are tax free

so e.g. if you pay say 3000 into your pension then you can earn 45,472 before there is any higher rate tax

terry999

CLAPTON wrote: »

you only pay 40% on the amount over 42,475

bear in mind that if you make payments to a pension they are tax free

so e.g. if you pay say 3000 into your pension then you can earn 45,472 before there is any higher rate tax

Thanks for your replies. I'm confused about the pension. I have a work stakeholder scheme which I've been topping up. So for every 100 additional I put in, the pension provider claims 20% back so I get 120 added.

I thought this extra 20-25% was the only benefit?

terry999

Sorry I meant to say for every £80 I put in the scheme manager claims £20 so I get £100 put in.

CLAPTON

terry999 wrote: »

Sorry I meant to say for every £80 I put in the scheme manager claims £20 so I get £100 put in.

indeed so but if you are a higher rate tax payer then you can reclaim an extra 20% direct from the tax man

pension payments are tax exempt

terry999

This is good news. I guess I can claim this back on my tax return?

I put my money into my pension this year, thinking (how wrong) that it couldn't go down any further. This should clear the amount my interest payments take me over the threshold.

jem16

terry999 wrote: »

This is good news. I guess I can claim this back on my tax return?

Yes. Make sure you enter the gross amount on your tax return and not the net amount.

Credit-Crunched

Plus your divi is due a further 22.5% tax