Tax on Savings - higher tax payer

Ash1982

Hi,

In April 2013 I am going to move into the higher rate income bracket (i.e. more than £32,245 per annum), does anybody know if I have to notify the bank in order for them to tax the interest on my non-ISA savings at 40% instead of 20%? or do HMRC notify them directly?

Thanks

Ash

bigfreddiel

2012-13 20% bracket is 0-34,370 - so nothing to worry about

http://www.hmrc.gov.uk/rates/it.htm#2

fj

Ash1982

Thanks but the rate is going down to £32,245 for 2013/14

https://www.gov.uk/income-tax-rates

so it's still relevant!

ffacoffipawb

bigfreddiel wrote: »

2012-13 20% bracket is 0-34,370 - so nothing to worry about

http://www.hmrc.gov.uk/rates/it.htm#2

fj

Don't forget the personal allowance on top, so higher rate starts at a salary of about £42k.

Ash1982

ffacoffipawb wrote: »

Don't forget the personal allowance on top, so higher rate starts at a salary of about £42k.

I didn't realise that!

Just out of interest though, when I do become a higher tax payer - how does it work with tax on interest?!

closed

the bank doesn't pay the extra 20%, you have to notify hmrc and fill out a self assessment form every year and pay it - best avoided by using up your isa allowances/paying off debt etc.

innovate

closed wrote: »

the bank doesn't pay the extra 20%, you have to notify hmrc and fill out a self assessment form every year and pay it - best avoided by using up your isa allowances/paying off debt etc.

You can't save tax by paying off debts (or by making/keeping debts).

Putting money into an ISA does save you the tax on the interest you get for the ISA. You do not have to declare your ISA savings/interest - but you may still be required to submit your Self Assessment.

You could also consider a SIPP - you will get a contribution from the HMRC to your payments. But a SIPP wouldn't reduce your taxable income, and you might still be required to submit the SA.

Your taxable income will always be your total income (e.g salary/pension, taxable interest payments, other income) minus your personal allowance.

Lastly, you only pay the higher rate on the sum above the respective clipping level. E.g. if your taxable income is £43,000 in 2012-13, you only pay the 40% tax on £524. The first £8,105 you earn are entirely tax-free, the next £34,371 are taxed at 20%.

Any

As said before, you don't notify bank, you will have to self assess.

Yes, you do have also the personal allowance. BUT any benefits in kind are also taxable for income tax, so for most people it is not as clearly cut as to say that if you get less then £42k in salary you are in 20% tax bracket.

So just to make sure we can advise whether you are or are not basic rate tax payer, it would help if you also posted your tax code and/or advised whether you get any benefits in kind (car, health insurance, etc..).

ColdIron

If you increase your pension contributions it will reduce your taxable income so you get more pension and instead of paying tax to HMRC it goes into you pension, free money

If you can arrange 'salary sacrifice' with your employer it's even easier

grey_gym_sock

while paying off debt doesn't in itself cut your tax bill, it does if you pay off debt with money which would otherwise be earning taxable interest.

ppl with very low mortgage rates, where they can get more interest in a savings account than they pay on the mortgage, so they have no incentive to pay off the mortgage early, may find this no longer works out when they move on to higher rate tax. (assuming they have no spare cash ISA allowance.)

closed

innovate wrote: »

You can't save tax by paying off debts (or by making/keeping debts).

By using savings to pay off debt or mortgage you can. The OP is asking about what happens when/if they become a higher rate tax payer.

The point was self assessment is best avoided if at all possible.