still confused £1000 tax free interest on savings

hoc

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.

When will this be officially clarified for good? It's been asked and debated a thousand times but still no sign of a definitive answer. Even the banks informing me of the change, including those that provide examples with numbers to explain do not address this issue.

I understand (presume, in the lack of information) similar to yours:

- income including from interest must be below the higher rate threshold to get 1000 allowance
- the allowance is based on final taxable income number, so similar to your gift aid option, taxable income that was initially at higher rate that has been reduced to under higher rate would get 1000

zagfles

hoc wrote: »

When will this be officially clarified for good? It's been asked and debated a thousand times but still no sign of a definitive answer. Even the banks informing me of the change, including those that provide examples with numbers to explain do not address this issue.

It's not law yet, so presumably when the Finance Bill 2016 (which includes the legislation for this) is passed by parliament.

I understand (presume, in the lack of information) similar to yours:

- income including from interest must be below the higher rate threshold to get 1000 allowance
- the allowance is based on final taxable income number, so similar to your gift aid option, taxable income that was initially at higher rate that has been reduced to under higher rate would get 1000

Gift aid contributions don't reduce taxable income, they extend the basic rate band. Which for the purposes we're discussing, has the same effect, ie increases the HRT threshold.

hoc

zagfles wrote: »

Gift aid contributions don't reduce taxable income, they extend the basic rate band. Which for the purposes we're discussing, has the same effect, ie increases the HRT threshold.

Did not know this. My message dropped a few words, I meant to write:
...the allowance is based on final taxable income number, so similar to your gift aid option, taxable income that was initially at higher rate that has been reduced by pension contributions to under higher rate would get 1000

zagfles

hoc wrote: »

Did not know this. My message dropped a few words, I meant to write:
...the allowance is based on final taxable income number, so similar to your gift aid option, taxable income that was initially at higher rate that has been reduced by pension contributions to under higher rate would get 1000

Pension conts work the same as gift aid ie they extend the basic rate band. But pension conts can't be backdated like gift aid can, so to use pension conts you'd have to make sure you get the sums right before the end of the tax year.

polymaff

For those who'd like to see more about the HMRC Making Tax Digital initiative:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/485372/Making_tax_digital_-_case_studies.pdf

A Brave New World, indeed