2016 no tax on first £1000 interest earned

zagfles

LXdaddy wrote: »

Yes, zagfles I think you are right. I think the fact that the total income is above £43,000 means you reach the Higher Tax Band so only get the smaller £500 Personal Savings Allowance.

This would make the calculation for someone with £42,000 of salary and £1,000 of interest would be
£12,000 tax free
£31,000 at 20%

But someone with £42,000 of salary and £1,001 of interest would be
£11,500 tax free
£31,500 at 20%
£1 at 40%

You meant 1,001 not 11,001 so have taken the liberty of correcting above.

Yes, the extra £1 of interest would cost £100.40 in tax! For people close to the threshold, they could get round it by pension contributions or gift aid as they would increase the basic rate band. Gift aid can be backdated so that could be used after the end of the tax year.

colsten

dprice1164 wrote: »

As I understand it, HMR are informed of all your banking interest payments via your NI number (confirmed when I recently spoke to HMR).

this cannot be true as most banks don't even have your NI for accounts other than ISAs (which are unaffected by the PSA).

dprice1164

colsten wrote: »

this cannot be true as most banks don't even have your NI for accounts other than ISAs (which are unaffected by the PSA).

When I spoke to HMR about this figure on my tax code form, the representative said 'we have been informed of this figure by your bank(s) and this has been the figure for at least the last three years.


The amount seemed reasonably accurate, albeit, historical.


I don't fill in a tax form and certainly haven't divulged any interest payments to them.

colsten

dprice1164 wrote: »

When I spoke to HMR about this figure on my tax code form, the representative said 'we have been informed of this figure by your bank(s) and this has been the figure for at least the last three years.


The amount seemed reasonably accurate, albeit, historical.


I don't fill in a tax form and certainly haven't divulged any interest payments to them.

Sure, but HMRC did not tell you that they "are informed of all your banking interest payments via your NI number". Or if they did, they were telling porkies.

Frogletina

zagfles wrote: »

You meant 1,001 not 11,001 so have taken the liberty of correcting above.

Yes, the extra £1 of interest would cost £100.40 in tax! For people close to the threshold, they could get round it by pension contributions or gift aid as they would increase the basic rate band. Gift aid can be backdated so that could be used after the end of the tax year.

Surely the easiest thing to do with a small excess would be keep the extra money as cash so that the interest does not exceed £1000.

masonic

Frogletina wrote: »

Surely the easiest thing to do with a small excess would be keep the extra money as cash so that the interest does not exceed £1000.

I'd rather give HMRC 20% or 40% of the interest and keep 80%/60% rather than deprive myself of 100% of it. One would still have to do the sums to determine that they were within the £1000 limit, so the only difference is the cost of a stamp to share their findings with HMRC (if this will even be required). In the case it would push someone into higher rate tax, receiving the money and donating it to charity is surely better than not receiving it at all.

dprice1164

colsten wrote: »

Sure, but HMRC did not tell you that they "are informed of all your banking interest payments via your NI number". Or if they did, they were telling porkies.

Correct, but lets not get hung up on how they know, because that isn't the point. Your financial affairs are in most cases linked to HMRC and if you don't inform them, they probably know anyway.

Frogletina

I will earn than £1000 in interest during the next tax year - my current thoughts are to transfer some of my cash into an ISA before this tax year is over, but it would only be worth doing that for accounts that are currently earning 2% or less. The bulk of my savings is in accounts earning 3% and over.

Next year I have plans to use my isa allowance to move some shares into an isa, so I won't be able to open a cash isa as well.

masonic

Frogletina wrote: »

I will earn than £1000 in interest during the next tax year - my current thoughts are to transfer some of my cash into an ISA before this tax year is over, but it would only be worth doing that for accounts that are currently earning 2% or less. The bulk of my savings is in accounts earning 3% and over.

Have you considered P2P lending? If you put the money into a cash ISA at the end of this tax year, you could transfer it into one of the new Innovative Finance ISAs at the start of the next tax year (preserving your 2016/17 allowance for S&S). Ratesetter has already announced they will be ready to receive transfers and others will probably do so in the coming weeks.

Dazed_and_confused

LXdaddy wrote: »

Yes, zagfles I think you are right. I think the fact that the total income is above £43,000 means you reach the Higher Tax Band so only get the smaller £500 Personal Savings Allowance.

This would make the calculation for someone with £42,000 of salary and £1,000 of interest would be
£12,000 tax free
£31,000 at 20%

But someone with £42,000 of salary and £1,001 of interest would be
£11,500 tax free
£31,500 at 20%
£1 at 40%


edit note - I originally had a typo of £11,001 interest - should have been £1,001

Are you sure about these figures? There is some new information on gov.UK that says the new savings allowance will actually use up some of the 20% tax band, pushing more income into the 40% band

"Income that is within an individual’s savings allowance will still count towards their basic or higher rate limits - and may therefore affect the level of savings allowance they are entitled to, and the rate of tax that is due on any savings income they receive in excess of this allowance"