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Personal Savings Allowance guide

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  • TrustyOven
    TrustyOven Posts: 746 Forumite
    Seventh Anniversary 500 Posts Combo Breaker
    What happens if your salary is right on the exact mark of the threshold between BR and HR income tax bands?

    Would one have £1000 PSA one year, then £500 the next year (because the next year there would have been more income than the threshold)?
    Goals
    Save £12k in 2017 #016 (£4212.06 / £10k) (42.12%)
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    Save £12k in 2014 #192 (£4115.62 / £5k) (82.3%)
  • TrustyOven wrote: »
    What happens if your salary is right on the exact mark of the threshold between BR and HR income tax bands?

    Would one have £1000 PSA one year, then £500 the next year (because the next year there would have been more income than the threshold)?

    Assuming you have at least £1 of saving income then you would have PSA of £500 because your total taxable income means you are above the higher rate limit. If you had £1000 interest the tax would be
    Salary 43000
    Interest 1000
    Total income 44000
    Less personal allowance 11000
    Taxable income 33000 taxed as
    32000 x 20%
    500 x 0% (this is the PSA bit)
    500 x 40%
  • Eco_Miser
    Eco_Miser Posts: 4,857 Forumite
    Part of the Furniture 1,000 Posts Photogenic Name Dropper
    Grimgrum wrote: »
    Hi Can someone help me understand this.
    A person earns £17,000.00 pounds and is taxed on this. They also receive £1000.00 interest on savings and will not be taxed on this.
    A person has a taxable income of £15,000 and savings interest of say £3000
    Savings interest is taxable income, so what you wrote there implies an earned (or pension etc,) income of £12,000.
    What you probably meant was earned income of £15,000 and interest of £3000, giving a total taxable income inf £18,000.
    Grimgrum wrote: »
    but they will be taxed on the £1000.00 or £1200.00 of interest above the £16,800 or £17,000 limit (I'm not sure which it is). Is there still a difference between earned and unearned income?
    It's £17000, but that's the sum of three separate allowances with different rules.

    Three types of income are recognised:
    Dividend income - from shares,
    savings income - interest, including interest on gilts and bonds as well as from banks, building societies and credit unions, and
    everything else - earnings, pensions, Halifax Rewards, etc.

    Rather than me typing everything out again in my own words, have a read of this post http://forums.moneysavingexpert.com/showpost.php?p=70422918&postcount=9
    Eco Miser
    Saving money for well over half a century
  • Grimgrum
    Grimgrum Posts: 23 Forumite
    Part of the Furniture 10 Posts Combo Breaker
    Fantastic thanks.
  • talexuser
    talexuser Posts: 3,531 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    edited 8 April 2016 at 7:34PM
    How about income of 42000 and 1000 of interest, the 1000 is tax free because still a basic rate taxpayer. Now income of 42001 and 1000 of interest means a tax bill increased by £100 because of that single £1 - you only get the higher rate savings allowance of 500. Plus you pay 40% on that £1!
  • MDMD
    MDMD Posts: 1,557 Forumite
    Tenth Anniversary 1,000 Posts Name Dropper
    talexuser wrote: »
    How about income of 42000 and 1000 of interest, the 1000 is tax free because still a basic rate taxpayer. Now income of 42001 and 1000 of interest means a tax bill increased by £100 because of that single £1 - you only get the higher rate savings allowance of 500. Plus you pay 40% on that £1!

    I think it might be worse than that. At 42000 and 1000 of interest the 1000 is taxed at 0%. With income of 42001 and 1000, £500 is taxed at 0% and £500 at 40%. So £200 (plus the 40% on the £1). Effective tax rate on the £1 is something like 20,040%: (200.40/1)x100
  • polymaff
    polymaff Posts: 3,950 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    MDMD wrote: »
    I think it might be worse than that. At 42000 and 1000 of interest the 1000 is taxed at 0%. With income of 42001 and 1000, £500 is taxed at 0% and £500 at 40%. So £200 (plus the 40% on the £1). Effective tax rate on the £1 is something like 20,040%: (200.40/1)x100

    Not quite that bad. At the critical point you lose £100 - which makes the marginal rate approximately 10,000%. (a taxable income of £43,001 can only push £1 into the 40% bracket)
  • RadHead
    RadHead Posts: 8 Forumite
    Can someone advise me on something I'm still having a bit of an issue with.

    I'm a basic rate earner who now earns (thanks to some MSE trickery of having several current accounts) £1005 in interest per year. This interest added to my current salary would not push me into the higher rate tax band.

    Therefore- will I pay 20% on the £5 which in excess of the PSA or pay 20% tax on the entirety of the £1005 interest? And if it is the former rather than the latter (which I expect it is) how will the £1 tax deduction over the course of the year be taken? From the bank account which earns the interest or through PAYE?

    Cheers.
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Post of the Month
    You owe the tax on the fiver that isn't covered by your allowance. You can pay it by having your tax code adjusted once it is clear how much you owe, or by sending it to them- The former would probably be easier.

    But as you don't know exactly how much you'll earn this tax year (let's face it, none of us do) it will be next tax year before you start paying off that £1 debt so I wouldn't get too excited about it right now.
  • HMRC have formally told me I don't need to make tax returns. My income hasn't changed although I vary the investments. I have an NS&I 3 year bond and just received the statement with tax deducted. Could anyone tell me how I recover this - and any others where the same might apply, please ?
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