2015/16 Tax Year no tax due if less than £15,600 income including Savings income.

bowlhead99

teamgb wrote: »

When the new marriage/partner allowance starts(10% of partners unused personal allowance) will you be able to earn another £1060 tax free. To give a total tax free income of £16660.


£10600 + £1060 + £5000.

Yes, the £5k starting band at 0% for savings starts AFTER your personal allowances. You might have more than the example £10600 allowance if you're old (age related personal allowance;77+?) or you have blind person's allowance, married couple's allowance or the new marriage allowance.
.https://www.gov.uk/apply-tax-free-interest-on-savings/tax-free-savings

Of course if your spouse has got some spare personal allowance while you have got lots of spare income, it's usually good to try and structure your savings and investments to use them both up, rather than relying on a bit of the allowance being transferable - but it'll be handy for some.

buglawton

Yes, this £5000 tax free is good for it's reasons - makes our lives simpler and encourages saving. Perhaps a better title of this thread would have been: "Everything just like before, but £5,000 of interest on cash savings will be tax free".

Anyway, per
http://www.which.co.uk/money/tax/guides/tax-on-savings-and-investments/dividend-tax/
"Dividends are automatically taxed (called 'taxed at source') at the rate of 10%..."

...so, they are treated exactly like bank interest.

It would be a real disappointment to hear that modest dividends STILL have to be declared in a tax return.
I'd really believed that all Taxed At Source savings were going to qualify for this £5,000 exemption.

littlelad

Could anyone clarify something for me. I earned £31,500 gross last tax year but, after additional extra pension and AVC contributions my taxable pay on my P60 for 2014/15 came down to just over the personal allowance - I earned £10,056 and paid just over £9 in income tax.

On the HMRC calculator it states I am eligible to complete a R85 form - I keyed in £10.056 as my taxable pay*

*Pay from employment or profits from working for yourself (amount before tax taken off)

Is this too good to be true?

bowlhead99

TCA wrote: »

bowlhead are you sure dividends are included for this purpose? When you look at the R85 helpsheet below, it specifically says "Do not include Student Loans or Dividends for the purposes of this form":

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/414637/R85_Helpsheet_150318.pdf

Sorry, to clarify:
Dividends are taxable income (although at 10% funded by the notional tax credit, at the levels of income we're talking about, hence zero tax to physically pay on any divi you receive).

And the rules on dividends haven't changed, just like the rules for salary or rental income or self employed tax and NI haven't changed. So if your total income is £14k, including £12k of salary and £1k of interest and £1k of dividend, you are still notionally paying tax on those dividends (funded by the tax credit) just like you are still paying tax on your wages (funded by deductions at source). All that changed is that you're no longer paying tax on any of the £1k of interest.

That was the point I was really making, i.e. the headline change is that there's a new rate for interest and not for other things.

But, dividend income is always taxed as the highest slice of your unearned income; savings and investment income is already taxed as the top slice of overall income, so that dividends will be at the very very top of your pile of income which gets taxed. That's useful for calculations at least, because it has its own special tax rates which aren't simply the 20, 40, 45% normal income tax rates. But it also means it won't actually affect whether you can get to and deal with your savings interest before you run out of allowance. However much the dividends are, they float to the top and you'll only look at them AFTER you deal with your interest.

So imagine you have an "income dispenser" on your wall which has your annual money from all sources in it in a big stack, with interest near the top and dividends at the very top, and a tap at the bottom to dispense your income:

The first bucket you try to fill is a tax free personal allowance bucket that has a capacity of £10600 (or very slightly bigger due to marriage/ age/ blind allowance). You fill that and whether you have enough income to completely fill it or not, you can take it away, tax free.

The next receptacle you start filling is a marked measuring bucket with a capacity of £5000. You keep pouring until you use up all your general income and stop to take a breather just before you get to the savings interest. If you had already got to the interest on the previous bucket you'd stop immediately. If you never reach the interest income with this bucket, you just keep going until it's full.

When you stop because it's full or you reached interest income, at that point you mark how full it is and work much space it has got left. Say you put £3000 in it, you'd write down that you have £2000 left. If you put £0 in it, you'd write down £5000 left. If it was full you'd write £0 left. The amount left, if any , is what you can get as tax free savings interest.

You send this bucket off to be taxed at 20%.

Then you look at what number you wrote down as spare capacity, the £2000 or £5000 or £0, and find another bucket that exact size. You go back to your tap and start pouring savings interest into it -if there is any - until you either fill the bucket or run out of savings interest. Whether you completely fill the bucket or not, you can take this bucket away tax free.

At this point you have dealt with any special deal you can get on your savings interest income- the last two, you've exhausted the £5000 band. If you have more income after that, of any kind, you just keep on pouring into new buckets and paying the normal basic rate of tax applicable to that income type (employment income, rental income, interest income, dividend income etc) until you have filled so many buckets after your personal allowance that you start using nastier High Rate buckets instead.

Not sure if that helps anyone visualise it. If you think of it as liquid in a dispenser with interest near the top and dividends floating on the very top, and drawing the income out through a tap at the bottom for the tax man to inspect, you'll probably get it right.

buglawton

This £5000 deal will mainly benefit cash rich income poor people = pensioners or approaching retirement. Even then it may only cost the govt a hundred million.

The real biggie for the rest of us will be in April 2016:
http://www.thisismoney.co.uk/money/saving/article-3010018/Has-Chancellor-George-Osborne-s-radical-Budget-reform-killed-cash-Isa.html
Trouble is, though it gives £500 tax free income even if on 40% tax, it only covers cash investments not shares. So still have to fiddle around with a tax declaration to get that tax straight, even if you only have 1 or 2 companies in your share portfolio and are getting less than £100 in dividends.

bowlhead99

buglawton wrote: »

Trouble is, though it gives £500 tax free income even if on 40% tax, it only covers cash investments not shares. So still have to fiddle around with a tax declaration to get that tax straight, even if you only have 1 or 2 companies in your share portfolio and are getting less than £100 in dividends.

If you only have a couple of companies in your portfolio and only getting £100 or so in divs, it will probably be more convenient to put the shares in an ISA and forget about any more recordkeeping, income tax, CGT etc. If the divs are £100ish then all the shares probably fit in one year's ISA allowance.

Higher rate taxpayers only pay 25% effective tax on dividends anyway which although more than basic rate payers is not massively painful. When people can shelter a 50k portfolio entirely inside an ISA wrapper within a few years allowances, I can't see there would be any government appetite to give a further perk to high rate payers by waiving tax on some arbitrary low amount of dividend income which would require you to still keep records to show whether you breached it or not. There's other legislation they could spend their time on. All imho.

soulsaver

So for clarification (for me, at least): If one's 'income' for 2015/16 will all be bank interest, say £15590 (just below the threshold) + all other income is dividends (say £5k) -so not enough to bump you into higher rate - one can register for gross bank interest?

bowlhead99

soulsaver wrote: »

So for clarification (for me, at least): If one's 'income' for 2015/16 will all be bank interest, say £15590 (just below the threshold) + all other income is dividends (say £5k) - not enough to bump you into higher rate - one can register for gross bank interest?

Yes, because the form you fill out specifically tells you to ignore dividends anyway. You just guesstimate whether you will be under the threshold or not and if you meet the criteria you can get your interest tax free (but then if you did need to pay tax after all, you'd have to sort that out at the end of the year.

Sea_Shell

Santander re-credited the tax straight away. Both Lloyds and TSB have now paid May interest Gross, but no rebate automatically given for April. Do you think they'll catch up with themselves, or would i have to chase them? (not sure i can be bothered negotiating their phone system for a couple of ££)

Vortigern

Sea_Shell wrote: »

Santander re-credited the tax straight away. Both Lloyds and TSB have now paid May interest Gross, but no rebate automatically given for April. Do you think they'll catch up with themselves, or would i have to chase them? (not sure i can be bothered negotiating their phone system for a couple of ££)

Both TSB and Lloyds will have paid your April interest before 6th April so that is in the previous tax year (2014-5)

You can reclaim the tax, if eligible, from HMRC using form R40. You can't get it back from the bank.