Calculating Tax on savings in 2016

lindabea

When calculating tax due after April 2016, do I subtract 16800 from my total taxable income (ie pension income +salary + savings income) and then pay 20% on any remaining balance). I would appreciate a simple explanation how to work out the tax after April 2016.

Sorry - I already posted this on the ISA sub forum, (on the other related thread) but thought it would be seen more on here!!

YorkshireBoy

http://www.moneysavingexpert.com/savings/personal-savings-allowance

lindabea

YorkshireBoy wrote: »

http://www.moneysavingexpert.com/savings/personal-savings-allowance

Thanks for the link, but although it explains some details, it does not answer my question. My confusion is how the nil rate of £5000 and the £1000 personal savings allowance affect the personal tax allowance that we can earn before paying any tax.

CLAPTON

lindabea wrote: »

When calculating tax due after April 2016, do I subtract 16800 from my total taxable income (ie pension income +salary + savings income) and then pay 20% on any remaining balance). I would appreciate a simple explanation how to work out the tax after April 2016.

Sorry - I already posted this on the ISA sub forum, (on the other related thread) but thought it would be seen more on here!!

no

e.g. if your pension/salary was say 20k
the you get the standard tax allowance off i.e. 11,000 and pay tax at 20% on the 9k

the 5k interest allowance is useless to you but the 1,000 gross interest is still available : that's because it is an INTEREST and NOT a salary or pension allowance

Eco_Miser

You can earn (pension+salary) up to your personal allowance without paying tax. You pay tax on any earnings above that. If your earnings are not more than than your PA, you could have up to £6000 in interest untaxed. Earnings up to £5000 above you PA reduce the starting rate allowance on interest, and are taxed themselves.
Whatever you get inside an ISA doesn't count at all.

grey_gym_sock

well, the figure will now be £17,000 (because next year's personal allowance will now be £11,000 instead of £10,800 ... unless they change that again in the budget).

i think you can calculate as follows:

first, check that total taxable income (of all kinds) is no more than £43,000 (that's £11,000 personal allowance + £32,000 basic rate band). if it is, you'll get the full £1,000 personal savings allowance.

then, add up all taxable income excluding any dividends (because dividends are treated as the top slice of income), and subtract £16,000 (for personal allowance + zero-rate band).

is that number greater than your figure for taxable interest? if so, replace it with your figure for taxable interest.

deduct £1,000 from the current number (for the personal savings allowance), but don't make it negative (i.e. reduce it to 0 instead).

then take 20% of that, and that's tax due on interest (since we already established that you aren't reaching higher rate tax).

lindabea

Thanks guys for your explanation. To understand it in more detail, if income is below 15800 (ie 10800 + 5000 say 14000), would the difference of 1800 be offset against the total saving interest as well as the 1000 before paying tax on any remaining saving income

lindabea

Grey Gym Sock - Many thanks for your reply. It explains it very well and in simple terms which I can now understand. :j

bigfreddiel

If you google for tax on savings interest you will find a link to a calculator that will tell you if you will bud any tax based on your income. http://www.hmrc.gov.uk/tools/r85/r85-2015.htm

And more detail here

https://www.gov.uk/apply-tax-free-interest-on-savings/overview

Cheers fj