Just Gone To 40% Tax Level

planemad

Dear All

I have just been broken into the 40% tax level effective today (1st July) - My wife is still on 20%.

We have quite an amount in saving accounts which I imagine from today the interest will be taxed at 40% - the savings are currently in my name but belong to us both.
Is it just a simple case of transferring my savings over to my wife who is a 20% tax payer - the funds belong to us both.
I have no issues for security with passing it in my wife's name.

oldvicar

planemad wrote: »

Dear All

I have just been broken into the 40% tax level effective today (1st July) - My wife is still on 20%.

We have quite an amount in saving accounts which I imagine from today the interest will be taxed at 40% - the savings are currently in my name but belong to us both.
Is it just a simple case of transferring my savings over to my wife who is a 20% tax payer - the funds belong to us both.
I have no issues for security with passing it in my wife's name.

Firstly, congratulations! You must be 'doing well'.

You will find that your marginal tax rate will be 40% for the whole tax year, from 6 April. So it is likely that any interest already paid this year will have extra tax to pay.

Yes, to reduce tax simply take money out of your savings accounts and give it to your wife to put into accounts in her name. Two cautions however:
1) Except for genuinely instant access accounts, watch out for any early withdrawal penalties - it may be worth giving the required notice or waiting until the end of the term despite the extra tax you will have to pay
2) If you close a savings account, interest to date will be paid out, and there will be extra tax to pay on it. If the normal interest payment date falls next tax year and you will no longer be a higher rate taxpayer then, keep the account open, even with just a small amount to avoid crystallising inerest this year.

Dont forget ways to reduce your taxable income, and maybe completely avoiding higher rate tax, are making pension contributions, and charitable donations. Also make use of your ISA allowance, and wife should do so too.

CLAPTON

planemad wrote: »

Dear All

I have just been broken into the 40% tax level effective today (1st July) - My wife is still on 20%.

We have quite an amount in saving accounts which I imagine from today the interest will be taxed at 40% - the savings are currently in my name but belong to us both.
Is it just a simple case of transferring my savings over to my wife who is a 20% tax payer - the funds belong to us both.
I have no issues for security with passing it in my wife's name.

Tax is a yearly tax so either you are a higher rate tax payer for the whole year or you are not.

to pay 40% tax you need to have income of over 42,475
this amount is made up of
-your earned income
-any benefits in klind
-(non ISA) savings interest grossed up
-dividends (non _ISA) grossed les

less
-any pension payments (grossed up if necessary)


if you are indeed a 40% traxpayer for the year i.e. your total government deduction increase from 32% to 42%
then you can
-increase pension contribution
-make max use of ISA allowance
-transfer other savings / investment to your wife

otherwise you will need to tell HMRC after year end that you have some unpaid tax.

gadgetmind

planemad wrote: »

We have quite an amount in saving accounts which I imagine from today the interest will be taxed at 40%

As others have said, tax is done from April 6th one year to April 5th of the next one. All income will be assessed for the whole year so you need to understand what your income will be for this period and plan accordingly.

Pension contributions are an important tax planning tool as is ensuring savings are in ISAs and/or your wife's name.

bigadaj

Pensions are a good way of 'avoiding' the 40%tax rate. I do a salary sacrifice to take me just under this level, my company contributions are a flay five per cent so no gain in matching contributions but the company does split half the employers national insurance saving with me, so there's an additional six per cent or so of free money, worth considering.

pqrdef

planemad wrote: »

We have quite an amount in saving accounts which I imagine from today the interest will be taxed at 40%

Note that interest is taxed when it's paid or credited, not when it's accrued.

If you've had any interest since April 5th, the whole lot will now get clobbered even though most of it was "earned" last year.

If you close an account, interest will be paid up to date, but if you remove all or nearly all of the balance leaving the account open, you might not get the interest until the next tax year, which will help if you don't pay higher rate next year.

opinions4u

Up your pension contributions.
Investigate payroll charitable giving.
Shift savings into your partner's name. Use ISAs in your name.
Choose your company car with real regard to tax or it will hurt you.
Check out tax reliefs on certain employer share schemes.

Oh, and enjoy the extra money.

pqrdef

Pension contributions reduce tax, but of course they don't increase your take-home, the saving goes into the black hole of the pension fund.

The same considerations apply whatever your income and tax rate. There's no reason to suddenly get interested in pensions (or anything else) to avoid crossing a threshold. Nothing drastic happens when you cross a threshold.

bigadaj

pqrdef wrote: »

Pension contributions reduce tax, but of course they don't increase your take-home, the saving goes into the black hole of the pension fund.

The same considerations apply whatever your income and tax rate. There's no reason to suddenly get interested in pensions (or anything else) to avoid crossing a threshold. Nothing drastic happens when you cross a threshold.

I know what toy are saying but many people would only consider it worthwhile contributing to a pension because of the higher rate tax relief, as it is costing you only six rather than eight pounds for every tenner you contribute.

If you have other things you what to spend your money on then fair enough, and also if you are only just over the boundary then the benefit will be minimal, but it's definitely worth considering.

gadgetmind

pqrdef wrote: »

the black hole of the pension fund.

What do you mean by "black hole" and (come to that) what do you mean by "pension fund".

Hartson_2

If you are a 40% tax-rate payer, do you need to inform the bank to take off another extra 20%, or do they do it automatically?

Or do you just have to send a cheque to HMRC at the end of the year?