2016 no tax on first £1000 interest earned

gadgetmind

So could my wife have £11k of pension income, £5k of dividend income (within allowance), and £5k of interest income?

And is this interest income only bank interest? Would income from corporate bonds be treated as earned income, so eat into the interest income?

They need to release a calculator!

patanne

I am seriously hoping that this will mean that my pension of £14k obviously taxable will mean that my interest on savings (which lets face it is peanuts at the moment) is not taxable. But we will see or not.

chris_m

gadgetmind wrote: »

So could my wife have £11k of pension income, £5k of dividend income (within allowance), and £5k of interest income?

I suspect not - if divvie income is treated as taxable income, as I was reminded in an earlier post, the interest allowance is reduced pound for pound as the taxable income exceeds the personal threshold. So, in your example, the interest allowance would be completely trumped by the divvie income.

Archi_Bald

patanne wrote: »

I am seriously hoping that this will mean that my pension of £14k obviously taxable will mean that my interest on savings (which lets face it is peanuts at the moment) is not taxable. But we will see or not.

Did you read this: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/414026/Savings_factographic_final.pdf

It's pretty clear.

KGriff

gadgetmind wrote: »

So could my wife have £11k of pension income, £5k of dividend income (within allowance), and £5k of interest income?

And is this interest income only bank interest? Would income from corporate bonds be treated as earned income, so eat into the interest income?

They need to release a calculator!

I think this link may help clarify things about earnings from dividends pre and post April 2016:

http://monevator.com/how-uk-dividends-are-taxed/

grey_gym_sock

gadgetmind wrote: »

So could my wife have £11k of pension income, £5k of dividend income (within allowance), and £5k of interest income?

chris_m wrote: »

I suspect not - if divvie income is treated as taxable income, as I was reminded in an earlier post, the interest allowance is reduced pound for pound as the taxable income exceeds the personal threshold. So, in your example, the interest allowance would be completely trumped by the divvie income.

i disagree, because dividends are treated as the top slice of income, interest as the middle slice, and just about everything else as the lowest slice (think of income tax as a 3-layer cake ... mmmmm, cake). so the amount of dividends has no effect on whether the interest falls within the £11k-16k band (where the rate will be 0% for interest). so i think the answer is yes.

i wonder whether you will be able to use both the £5k zero-rate band and the £1k (for a basic-rate taxpayer) savings allowance. though i'm now guessing you won't be able to, on the grounds that that would be analogous to the way the dividend tax allowance will work (according the illustrative examples that were published).

gadgetmind wrote: »

And is this interest income only bank interest? Would income from corporate bonds be treated as earned income, so eat into the interest income?

i think it's all interest. interest has all been grouped together in previous tax calculations.

They need to release a calculator!

i'm not sure if somebody mentioned trying this, but you can use online self-assessment for last tax year to test scenarios (and then make a revised submission with the correct figures for last year). the zero-rate band for interest is just the 10%-starting-rate with a different rate (and it's now a wider band), so if you get 10% applied to interest in 2014-15, you'll presumably get 0% in 2015-16 onwards.

however, the savings allowance is new (as is the dividend allowance), so you can't test that yet.

Carnival789

Just to throw this into the mix - presumably the monthly £5 from halifax will be exempt from being part of our annual interest totals?

either way, I'm not looking forward to having keep a record of all interest payments received throughout the year (and then having to fill out forms etc for the self-declaration part). Oh well, I will just have to think of the money it's saved me overall !

gadgetmind

We've always had to track this for our Self Assessments so nothing new really.

Carnival789

Ah ok... It's going to be my first time of having to, when the time eventually comes!

Is the process pretty straightforward if you don't mind me asking?

gadgetmind

Yes, pretty easy, but it takes a while to get registered, so don't leave it too late.

But for small amounts of interest, you can just call up and get your tax code tweaked.