Savings Tax (R85)

polymaff

jayell wrote: »

One of the bits I dont get is this from The Coventry BS link
"Other taxable income – include rental income. 'Do not include Student
Loans or Dividends for the purposes of this form.'"

Do you include Dividends or not!

I have withdrawn most of the R85's now. it is just TOO confusing.

That Coventry statement is in accord with the principle I mentioned of dividends not being considered when taxing non-savings and savings income. But, yes, the flux of our tax system is very confusing. What on earth is this Office of Tax Simplification up to? Changes in recent budgets have all sorts of unintended consequences - and it doesn't help that when you Google R85 - as I did this afternoon - you get passed to an HMRC page which has not been applicable since 6th April.

One booby trap waiting to specifically hit people in your circumstances, Jayell, is the bizarre effect of the £5,000 Starting Rate savings allowance. When you reach state pension age, should you choose to take that pension, then that may wipe out that allowance completely. You'll be taxed on your state pension, plus you may lose all of that savings allowance - leaving you with a marginal tax rate on your state pension of up to 40%. I wonder if that was anticipated? They're out to get you.

molerat

It is confusing as the link I posted states

Your taxable income (including some benefits) usually needs to be less than £15,600 a year to get all your interest tax-free.

The link to taxable income shows

You pay tax on things like:

• money you earn from employment
• profits you make if you’re self-employed - including from services you sell through websites or apps
• some state benefits
• most pensions, including state pensions, company and personal pensions and retirement annuities
• interest on savings and pensioner bonds
• rental income (unless you’re a live-in landlord and get £4,250 or less)
• benefits you get from your job
• income from a trust
• dividends from company shares

so it would be assumed that dividends need to be taken into account, and the "check if you qualify" link does not state not to but the R85 (2015/16) guidance specifically states not to.

agrinnall

To my mind the Coventry advice would be fine for the vast majority of people, as dividends already attract a (unreturnable) notional basic rate tax, so they can be ignored for the purposes of calculating income for R85 submission. The only time it would impact is if the amount of dividends is so high that it takes the taxpayer into a higher rate tax band, when obviously the R85 wouldn't apply. But I would imagine the number of people making this much from dividends but less than £15,600 from other sources including savings must be pretty small.

molerat

polymaff wrote: »

One booby trap waiting to specifically hit people in your circumstances, Jayell, is the bizarre effect of the £5,000 Starting Rate savings allowance. When you reach state pension age, should you choose to take that pension, then that may wipe out that allowance completely. You'll be taxed on your state pension, plus you may lose all of that savings allowance - leaving you with a marginal tax rate on your state pension of up to 40%. I wonder if that was anticipated? They're out to get you.

From next year everyone will be allowed £0/£500/£1000 (or £6000) tax free savings interest so I doubt many that do not currently pay tax will be affected.

xylophone

http://www.taxvol.org.uk/about-tax/entitled-10-band-savings-interest/

"On 6 April 2015 the 10% savings rate was abolished and replaced by the 0% savings rate. The rules for signing an R85, the form used to inform a savings provider to pay interest gross also changed.

The 0% band for 2015/16 is £5,000, it is restricted by non- savings taxable income (ignoring dividends) so that none of the band will be available if that income is above £5,000 of their personal allowance.

The easiest way to establish if a client qualifies is to add up their non- savings income (ignoring dividends), if it is below or within their personal allowance plus £5,000 then the rate will apply.'

xylophone

I see that HL have produced this guide to the proposed "£5000 dividend allowance".

http://www.hl.co.uk/news/articles/budget-2015-changes-to-dividend-tax-explained

polymaff

xylophone wrote: »

I see that HL have produced this guide to the proposed "£5000 dividend allowance".

http://www.hl.co.uk/news/articles/budget-2015-changes-to-dividend-tax-explained

That guide is not bad, except - as it acknowledges - the process will not be fully defined until the relevant legislation is enacted. Likewise the application of the PSA (Personal Savings Allowance). Both will have unexpected consequences for some tax-payers, like the previously mentioned case of Jayell, his state pension and the Starting Rate Allowance. Amongst Accountants - who are pressing HMRC, through their professional body, for guidance - the commonest comment is "And so this is the first step towards the promised, simplified, tax system?"

polymaff

molerat wrote: »

From next year everyone will be allowed £0/£500/£1000 (or £6000) tax free savings interest ...

Subject to legislation, up to £6,000 of taxable savings income will be taxed at 0% in year 2016/17, the actual amount for each tax-payer requiring a more complex analysis of their circumstances than in previous years.

My comment you quote is just a warning to the OP that even the recent, apparently universally benign, changes to the Starting Rate Allowance could leave him at quite a disadvantage compared to others.

polymaff

xylophone wrote: »

The 0% band for 2015/16 is £5,000, it is restricted by non- savings taxable income (ignoring dividends) so that none of the band will be available if that income is above £5,000 of their personal allowance.

You quote correctly, but what awful abuse of the English language this is. No wonder there is so much ambiguity and confusion with tosh like this being published.

jayell

So, with this year's PA at £10600 + £5000 for savings, I have £11300-10600=£700 taxable. With £2500 From Shares and £1800 from savings(= £4300) Can I assume I will be on the 0% tax rate and so eligible for R85's.
And what happens if I unexpectedly get more savings return (if the bank rate should go up).
Sorry if I appear dim, but I am struggling here. Thanks