Trying to understand the new Savings Allowance & the 5K Dividend Allowance

polymaff

Consumerist wrote: »

Question:

If I have transferred £1,100 of my PA to my spouse, will the full £11k still be used in calculating the start of the 0% tax-band on interest receipts?

No .

Consumerist

polymaff wrote: »

No .

Ok. That's what I thought.

Thanks.

dgaf

Got my numbers for 2016/17:

Savings interest - £11170.80

Dividends - £7994.46

Total - £19165.26

Reading back through the replies on this thread, am I correct in my thinking that the savings interest is covered by my PA plus the £1K savings allowance.

And on the dividends that I received, after allowing for the £5K dividend allowance, the remaining £2994.46 is taxable @ 7.5% = £224.58

Dazed_and_confused

I don't think you have any tax to pay if that is genuinely your total income and there is nothing else to consider such as wages or pension income.

The reason for this is that it transpires that the personal allowance can be allocated as you desire so,

PA 11000 is split 2994 to dividends and 8006 to savings interest.
That leaves savings interest of 3164 and dividends of 5000 to be taxed.
3164 x 0% = 0 (savings rate band)
5000 x 0% = 0 (dividend rate band)

So you are one of the lower earners who possibly may be surprised to find out you don't get the personal savings allowance but i guess you shouldn't be overly bothered by that as you have no tax to pay.

Polymaff will no doubt comment in due course if i have got anything wrong in my workings

polymaff

Dazed_and_confused wrote: »

I don't think you have any tax to pay if that is genuinely your total income and there is nothing else to consider such as wages or pension income.

The reason for this is that it transpires that the personal allowance can be allocated as you desire so,

PA 11000 is split 2994 to dividends and 8006 to savings interest.
That leaves savings interest of 3164 and dividends of 5000 to be taxed.
3164 x 0% = 0 (savings rate band)
5000 x 0% = 0 (dividend rate band)

So you are one of the lower earners who possibly may be surprised to find out you don't get the personal savings allowance but i guess you shouldn't be overly bothered by that as you have no tax to pay.

Polymaff will no doubt comment in due course if i have got anything wrong in my workings

2016/17 self assessment computes you total taxable then subtracts your Personal Allowance. It is the result of this subtraction which is fed forward into the old-style taxable non-savings, taxable savings, dividends process. I wonder if all the ramifications of this have been thought out?

Everyone gets the Personal Savings Allowance (£1,000,£500 or £0). Its just a case of whether it is used or not. In this case it isn't, as the total non-dividend taxable income is less than the standard Personal Allowance plus the Starting Rate Allowance.

Not knowing the details of the bug that's wrecking havoc in certain circumstances, I can't say for sure that dgaf's figures won't fall foul of HMRC's incompetence. The correct calculation will be, approximately, as dgaf states it, although the extra savings income should be covered by the Starting Rate Allowance, not the Personal Savings Allowance.

If dgaf does an online return it'll be interesting to know what the HMRC calculation shows. It should be £224.55 - but it will be interesting to know - £224.55 or not - how the breakdown of the taxable savings income is given (starting rate, nil rate and/or basic rate)

And this is supposed to be the Era of Tax Simplification. Heaven help us when MTD - alias Tax-Armageddon - is wheeled out.

Dazed_and_confused

Polymaff,

I'm confused now, you say If dgaf does an online return it'll be interesting to know what the HMRC calculation shows. It should be £224.55

Where have i gone wrong in my calculation which results in no tax being payable?

For the avoidance of doubt I'm interested in what the correct liability should be, not what the HMRC return would calculate at the moment.

polymaff

Dazed_and_confused wrote: »

Polymaff,

I'm confused now, you say If dgaf does an online return it'll be interesting to know what the HMRC calculation shows. It should be £224.55

Where have i gone wrong in my calculation which results in no tax being payable?

For the avoidance of doubt I'm interested in what the correct liability should be, not what the HMRC return would calculate at the moment.

I believe the liability to be the figure I wrote: £224.55.

The taxable savings income uses up the entire Personal Allowance - and a bit of the Starting Rate Allowance (as I see it), or a bit of the Personal Savings Allowance (as HMRC mistakenly compute). With the taxable savings dealt with, and the Personal Allowance fully consumed, the only allowance left for the dividend income is the Dividend Allowance.

£5,000 at 0%, the rest at 7.5%.

The above analysis is based upon the Order of Taxation (a technical term as old as the hills) being taxable non-savings income computed first, then taxable savings income, then dividend income - which I've always assumed to mean there is also an order of consumption of allowances. HMRC have repeatedly stated that the order is still the rule - but I have seen others suggesting that ignoring that order of consumption of allowances to reduce the taxation is acceptable. Well, there are a number of philosophies. One is that the legislation is paramount; one is that HMRC's statements are paramount; another is that what HMRC actually does is what counts. This example - like all the discussion that's taken place on MSE about being the recipient of MAT - will not resolve until, heaven knows when.

The ambiguity surrounding such cases is one reason why I previously wrote "2016/17 self assessment computes your total taxable then subtracts your Personal Allowance. It is the result of this subtraction which is fed forward into the old-style taxable non-savings, taxable savings, dividends process. I wonder if all the ramifications of this have been thought out?". In the case I've quoted elsewhere the "order of taxation" has not been carried through as previously, in that whilst HMRC seem to have started with non-savings taxable income, they have decided to hold over the Personal Allowance for later use. It may be that I've missed something. Wouldn't be the first time.

Dazed_and_confused

I think things have changed now as the manual calculation notes on gov.uk (relating to the form SA110) have the following note in them,

Because it may be more beneficial for some customers to now have (some of) their deductions and
allowances from box A125 allocated against dividend income before savings income etc. The savings
income etc is at boxes A137 to A139 and at boxes A155 to A157. If it's more beneficial to move
deductions and allowances to dividends in the higher rate range to increase tax at the basic rate, but
reduce tax at the higher dividend rate this working sheet may not give the correct answer. Overwrite the
amounts in the middle column to deduct the reliefs and allowances in the way which will result in the
greatest reduction in your liability to Income Tax.

polymaff

Dazed_and_confused wrote: »

I think things have changed now as the manual calculation notes on gov.uk (relating to the form SA110) have the following note in them,

Because it may be more beneficial for some customers to now have (some of) their deductions and
allowances from box A125 allocated against dividend income before savings income etc. The savings
income etc is at boxes A137 to A139 and at boxes A155 to A157. If it's more beneficial to move
deductions and allowances to dividends in the higher rate range to increase tax at the basic rate, but
reduce tax at the higher dividend rate this working sheet may not give the correct answer. Overwrite the
amounts in the middle column to deduct the reliefs and allowances in the way which will result in the
greatest reduction in your liability to Income Tax.

Quite - and I need to study both the 2016/17 specification and implementation of this by HMRC. I've not yet seen any indication that the specification optimises the tax - but, mind you, HMRC doesn't make this particularly easy as they have presented it as black text on a dark purple backgound

polymaff

@D+C:

Just a couple of comments after a bit of research. I think that you are quoting "Tax calculation summary notes (2017)", Section 5?. I asked HMRC if the ability to allocate Personal Allowance between the three classes of taxable income was new this year. Yes it is. I asked if this ability to divide up an allowance was just for the Personal Allowance. Yes. I asked HMRC about the "etc." in this document. Does the etc. refer to other type of savings income or other classes of taxable income, i.e. taxable non-savings income? The agent confirmed that it meant all of the things that could be described as savings. I then asked if this meant that taxable non-savings income was not part of this redistribution. Yes. Then I reported the case I've been talking of where only £83 of the personal allowance was allocated to taxable non-savings, with the balance of the £11,000 being allocated to taxable savings. Is this a higher rate taxpayer? No. I'll have to refer this to our technical department. Can you give me an example of when there would be any advantage to distributing the personal allowance? The technical department will address this.

That being about it, I mentioned the error in the paragraph being discussed. Did you spot it?

So, I don't think that this topic invalidates either my estimate of £224.55 - or my models. Now I'm waiting for the call-back - but I'm not holding my breath.