higher rate tax threshold

etienneg

I know that the higher rate tax threshold this year is £42,385. Is this just salary, or does it include savings interest? For example, suppose someone has a salary of £42,000 and savings (gross) interest of £1,000. Is this person a standard rate or higher rate taxpayer?

CLAPTON

etienneg wrote: »

I know that the higher rate tax threshold this year is £42,385. Is this just salary, or does it include savings interest? For example, suppose someone has a salary of £42,000 and savings (gross) interest of £1,000. Is this person a standard rate or higher rate taxpayer?

basically yes

you will pay (assuming no pension contributions and not in an ISA etc)) 40% on £615 (i.e. an extra 20% or £123
you need to tell HMRC about the interest after tax year end

etienneg

OK, thanks for this reply. So, moving forward to next tax year when the higher rate threshold goes up to £42,700 (I believe). Someone with a salary of £41,700 and gross savings interest of £1,000 is a basic rate taxpayer, so will get that £1,000 interest tax-free. However, with a salary of £42,701 he becomes a higher rate taxpayer and will only get £500 tax-free. His pay rise of £1 will cost him tax on the other £500 (£100, or thereabouts). Is this correct?

CLAPTON

etienneg wrote: »

OK, thanks for this reply. So, moving forward to next tax year when the higher rate threshold goes up to £42,700 (I believe). Someone with a salary of £41,700 and gross savings interest of £1,000 is a basic rate taxpayer, so will get that £1,000 interest tax-free. However, with a salary of £42,701 he becomes a higher rate taxpayer and will only get £500 tax-free. His pay rise of £1 will cost him tax on the other £500 (£100, or thereabouts). Is this correct?

that would appear to be so as I haven't seen any 'phase' in arrangement
maybe consider a pension contribution of ISA depending upon your circumstance

martinsurrey

etienneg wrote: »

OK, thanks for this reply. So, moving forward to next tax year when the higher rate threshold goes up to £42,700 (I believe). Someone with a salary of £41,700 and gross savings interest of £1,000 is a basic rate taxpayer, so will get that £1,000 interest tax-free. However, with a salary of £42,701 he becomes a higher rate taxpayer and will only get £500 tax-free. His pay rise of £1 will cost him tax on the other £500 (£100, or thereabouts). Is this correct?

yes
Gov PDF
Welcome to the wonderful word of higher rate regressive taxation points.

"To be eligible for the £1,000 tax-free Personal
Savings Allowance your taxable income needs to
be less than £42,700 a year.
To be eligible for the £500 tax-free Personal
Savings Allowance your taxable income needs to
be between £42,701 and £150,000 a year"

[Deleted User]

martinsurrey wrote: »

yes
Gov PDF
Welcome to the wonderful word of higher rate regressive taxation points.

"To be eligible for the £1,000 tax-free Personal
Savings Allowance your taxable income needs to
be less than £42,700 a year.
To be eligible for the £500 tax-free Personal
Savings Allowance your taxable income needs to
be between £42,701 and £150,000 a year"

I think old George was going to do something similar initially with child benefit - earn £1 more and lose it all - before someone pointed out the anomaly of, as you say, regressive taxation. Was there not also something similar with the 10% rate abolition debacle under his predecessor?

Obviously didn't learn from these.

jem16

etienneg wrote: »

OK, thanks for this reply. So, moving forward to next tax year when the higher rate threshold goes up to £42,700 (I believe). Someone with a salary of £41,700 and gross savings interest of £1,000 is a basic rate taxpayer, so will get that £1,000 interest tax-free. However, with a salary of £42,701 he becomes a higher rate taxpayer and will only get £500 tax-free. His pay rise of £1 will cost him tax on the other £500 (£100, or thereabouts). Is this correct?

There is still some debate about this and there was a long thread on the Savings board about it not so long ago.

Savings interest is still classed as taxable income so a salary of £42,700 and savings interest of £1000 would be a total taxable income of £43,700 making that person a higher rate taxpayer and thus only allowed £500 interest tax-free.

Until actual worked examples appear no-one seems sure.

MDMD

jem16 wrote: »

There is still some debate about this and there was a long thread on the Savings board about it not so long ago.

Savings interest is still classed as taxable income so a salary of £42,700 and savings interest of £1000 would be a total taxable income of £43,700 making that person a higher rate taxpayer and thus only allowed £500 interest tax-free.

Until actual worked examples appear no-one seems sure.

The draft legislation seems quite clear:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/483631/Draft_clause_1.pdf

The new section 12B states

If—
(a) any of the individual’s income for the year is higher-rate income, and
(b) none of the individual’s income for the year is additional-rate income,

the individual’s savings allowance for the year is £500.

hoc

The current understanding is taxable income, including interest earnings, must be under 42,700 to benefit from the 1,000 savings allowance.

Presumably 42,700 is the total following tax relief such as SIPP payments ie not starting income.

kidmugsy

Part of the problem is with the expression "savings allowance". I've seen discussion of the "dividend allowance" pointing out that is not an allowance in the sense that the Personal Allowance is; rather it's a taxable but zero-rated annual amount. So we can expect quite a bit of complaining, next tax year, when people realise. Does anyone here know more about this for dividends? I think it's essentially the same point as that being made by several of you already about savings interest.


P.S. Depending on what Osborne announces in his Budget, Clapton's suggestion "maybe consider a pension contribution" might no longer work.

MDMD

kidmugsy wrote: »

Does anyone here know more about this for dividends? I think it's essentially the same point as that being made by several of you already about savings interest

Latest guidance is here:

https://www.gov.uk/government/publications/income-tax-changes-to-dividend-taxation/income-tax-changes-to-dividend-taxation