still confused £1000 tax free interest on savings

BassBunny

I am still trying to get my head around the situation regarding ISA's.
Will there still be a yearly ISA allowance as well as the £1000 Tax Free Interest allowance?

Terry98

I think Martin's podcast on Radio 5 tomorrow is going to cover this subject.

http://www.bbc.co.uk/programmes/p02pc9xt/episodes/downloads

BassBunny

I was hoping to get the answer from the ITV program he did on Friday. Unfortunately not.

zagfles

BassBunny wrote: »

I am still trying to get my head around the situation regarding ISA's.
Will there still be a yearly ISA allowance as well as the £1000 Tax Free Interest allowance?

ISAs aren't changing, so you still get the ISA allowance as well.

BassBunny

zagfles wrote: »

ISAs aren't changing, so you still get the ISA allowance as well.

Excellent, that is exactly what I needed to know.

goRt

OK, can anyone clarify for me please - I can control my income to the penny, basic rate tax is up to 43.3k of income, does that include the £1k or exclude?

Thanks

zagfles

goRt wrote: »

OK, can anyone clarify for me please - I can control my income to the penny, basic rate tax is up to 43.3k of income, does that include the £1k or exclude?

Thanks

Basic rate is £43k next year (inc PA) not £43.3k.

http://www.gov.uk/government/publications/income-tax-personal-savings-allowance/income-tax-personal-savings-allowance

As I understand it from the above, in order to get the full £1000 allowance for basic rate taxpayers you'd need to have income at or below £43k including all your (non ISA) interest and dividends.

So if you have employment income of £42k and interest of £1000 you are OK.

But if you have employment income of £42,000 and interest of £1001, you'd only have a £500 tax free interest allowance and would have to pay 20% tax on £500 of your interest and 40% on £1 of it!

That's my understanding of it anyway. It seems all (non ISA) interest still counts towards tax bands but there's just a exemption from tax on the allowance. Rather than the interest income within the allowance simply being disregarded.

goRt

zagfles wrote: »

Basic rate is £43k next year (inc PA) not £43.3k.

http://www.gov.uk/government/publications/income-tax-personal-savings-allowance/income-tax-personal-savings-allowance

As I understand it from the above, in order to get the full £1000 allowance for basic rate taxpayers you'd need to have income at or below £43k including all your (non ISA) interest and dividends.

So if you have employment income of £42k and interest of £1000 you are OK.

But if you have employment income of £42,000 and interest of £1001, you'd only have a £500 tax free interest allowance and would have to pay 20% tax on £500 of your interest and 40% on £1 of it!

That's my understanding of it anyway. It seems all (non ISA) interest still counts towards tax bands but there's just a exemption from tax on the allowance. Rather than the interest income within the allowance simply being disregarded.

Thanks for the clarification on the 43k; I have no employment income - I retired a few years ago at 50.

zagfles

goRt wrote: »

Thanks for the clarification on the 43k; I have no employment income - I retired a few years ago at 50.

Same for pensions income or any other taxable income.

I suppose one way round it, if you're on the borderline and accidently go a few £ over and don't realise till after the end of the tax year, is to make a gift aid contribution and backdate it, which you can do and which would extend the basic rate band taking you out of higher rate tax.

For instance if your income turns out to be £43010 including £1000 of interest, make a £8 net (£10 gross) gift aid donation before you do your tax return, and backdate it to the tax year concerned. You're then out of higher rate tax even including the interest and so get the £1000 interest tax free.

goRt

zagfles wrote: »

Same for pensions income or any other taxable income.

That'll be why I used the word income in my initial post then ;-)