Just Gone To 40% Tax Level

JoeCrystal

Well, outside Cash ISAs, all interests in Saving Accounts are taxed at 20% anyway.

Cheers

Joe

guitarman001

I don't understand - are you saying if I am just below the 40% tac band and my interest pushes me above it, I get taxed more?
Or are you saying that a savings rate of 3% is worth less to a higher rate tax payer? The rate is the same for everybody, I don't see where this tax comes in. Maybe I need a numbers example. Long day..!

JoeCrystal

guitarman001 wrote: »

I don't understand - are you saying if I am just below the 40% tac band and my interest pushes me above it, I get taxed more?
Or are you saying that a savings rate of 3% is worth less to a higher rate tax payer? The rate is the same for everybody, I don't see where this tax comes in. Maybe I need a numbers example. Long day..!

Hmm... Let say you get Gross 3% interest on £10,000. You get net £240 as the Bank deducted 20% (£60). But the income threshold are based on gross income, hence £300 is considered as income and if you pass the threshold of 40% tax. Then you would need to pay another 20% (adding up to 40%) tax to very nice people, HMRC.

To be honest, banks taxing savings interests at source is a real boon to everyone since all 20% tax-rate payers don't need to tell HMRC about it anyway. One less thing to worry about.

Cheers

Joe

opinions4u

guitarman001 wrote: »

I don't understand.

I'm a 20% tax-rate payer. I get taxed on salary then the remainder can go into a savings account. What part of that gets taxed!?

The savings don't get taxed.

The interest generated by the savings is subject to tax unless held in an ISA or other exempt account.

£1,000 saved at 3% interest earns £30 a year. The bank give 20% of this, £6, to HMRC. You get the other £24. If you are a 40% taxpayer you have to tell HMRC and pay a further £6 in tax. This additional sum is between you and HMRC and isn't your bank's problem.

bigadaj

guitarman001 wrote: »

I don't understand - are you saying if I am just below the 40% tac band and my interest pushes me above it, I get taxed more?
Or are you saying that a savings rate of 3% is worth less to a higher rate tax payer? The rate is the same for everybody, I don't see where this tax comes in. Maybe I need a numbers example. Long day..!

Yes that correct, so if your interest takes you into 40%tax then you need to tell the revenue. If this is your only source of non paye income they will normally send you a single sheet, rather than the short return tax form. They will then calculate the tax you owe and normally with small amounts amend your tax code going forward to tax into account the savings interest.

guitarman001

So the £300 interest is actually taxable?
Please bear with me as I've never gotten my head around this...

The rates are stated as gross but net usually has 20% knocked off and this is done automatically, so all basic-rate taxpayers (20% level) don't need to inform HMRC at all UNLESS the savings interest takes their total earnings in one year to greater than the high-tax-band level? In which case they'd take another 20% off the interest?

Perhaps it's just because I've always been a lower-rate taxpayer, I've never had to worry... but when I get close to the 40% band, I would have to pay attention then. What a bummer that is, realistically how many people do you think actually inform HMRC of this?? If I ever got to the 40% band then I would have just assumed that the net rate was the net rate and left it at that. But you're saying one would have to download a form or ring up HMRC to inform them. In which case ISAs really do make sense as the normal savings accounts rates would just not be an attractive option for higher-rate taxpayers?

Phew... hopefully I got that - may thanks!

guitarman001

Just saw the other replies - thanks!

Again, how many people do you think know this? I never truly did until now! Do HMRC catch on?? (I'm not advocating not paying up!)

gadgetmind

guitarman001 wrote: »

I don't understand - are you saying if I am just below the 40% tac band and my interest pushes me above it, I get taxed more?

Yes. You get taxed at 40% on anything above the 40% band.

Or are you saying that a savings rate of 3% is worth less to a higher rate tax payer?

Yes.

Let's assume three people save £1000 in a 3% AER interest account. All will get £30 pa in interest, but a 20% tax payer will then lose £6 in tax, and a 40% tax payer will lose another £6.

How income from employment, interest income, dividend income, and capital gains, are taxed isn't straightforwards but is well worth understanding as working these income streams efficiently is important.

My wife doesn't work, her annual income from interest, dividends and capital gains is *just* under the 40% boundary, and she pays less than 10% in tax. In a few years, this will fall to 0%, which is nice.

guitarman001

Hmm, my girlfriend doesn't earn all that much - I think she may actually be below the main tax band. Does this mean she should get some sort of rebate on the 20% interest knocked off her savings?

guitarman001

gadgetmind - perhaps too personal but how does she do that? Makes use of ISAs etc?? You don't have to answer!! Help appreciated in any case