New £1000 savings allowance 20% and 40% tax bracket

i_was_taught_2b_cautious

Hi all

How much can someone earn before they hit the 40% tax bracket?

I am asking because some people have never filled in a tax return but their savings interest might push them into the 40% tax bracket.

If this is the case will the banks let HMRC know or is it up to us?

SpeedSouth

This year's 16/17 it's 45k before you pay HRT.

If you earn 44,999. I'm not sure if youd then get a 1000 or 500 of interest free mind you.

Technically your BR payer, so I'd guess you'd get 1000 free?

Futuristic

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/413970/TIIN_4168_income_tax_personal_allowances_and_basic_rate_limit.pdf
Banks are no longer involved, you submit a return and pay HMRC yourself at the end of the year.

BeansOnToast_2

Futuristic wrote: »

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/413970/TIIN_4168_income_tax_personal_allowances_and_basic_rate_limit.pdf

Page Not Found

ffacoffipawb

adam81 wrote: »

This year's 16/17 it's 45k before you pay HRT.

If you earn 44,999. I'm not sure if youd then get a 1000 or 500 of interest free mind you.

Technically your BR payer, so I'd guess you'd get 1000 free?

Its £43,000 in 2016/17. The interest income is also counted in this figure.

£42,300 salary + £700 gross interest = no tax due

£42,400 salary + £700 gross interest = higher rate tax due on £200 (i.e. £80) even though salary is less than £43,000 because total income is over this amount which makes you a higher rate taxpayer.

ColdIron

i_was_taught_2b_cautious wrote: »

How much can someone earn before they hit the 40% tax bracket?

The numbers are easy to remember 2016/2017

£32,000 basic rate band + your personal allowance which for most people will be £11,000 so £43,000

If your income, including interest as ff says, takes you above this then it's between you and HMRC

[STRIKE]PS £42,400 salary + £700 gross interest = 43,100 = higher rate tax due on £100[/STRIKE]

planteria

interesting thread.
i'm a BR taxpayer, and on one hand, remaining under the threshold is beneficial, enabling us to bag £1000 of Savings Interest...useful for the stoozer.
on the other hand, i have thought of trying to get above the threshold as then i understand that pension contributions would get the 40% uplift:think:

ColdIron

planteria wrote: »

i have thought of trying to get above the threshold as then i understand that pension contributions would get the 40% uplift:think:

Don't do it

The pensions 'uplift' isn't a bung or free money. You just get the extra tax you've paid rebated

It would be silly to want to pay 40% tax instead of 20% so that you could get that 40% back instead of the 20%

Add onto that the other consquential liabilities such as higher CGT and dividend tax rates you could be a lot worse off

planteria

thanks CI... but if someone was a few pounds into the 40% bracket and then contributed £10,000 to their pension, would they get 40% 'back' on the whole £10,000?

ColdIron

If only

Sadly you just get the extra tax that you've paid back. I.e. on the 'few pounds into the 40%'

If your employer offers it you might consider Salary Sacrifice for your pension. Your pension payments are made before tax is deducted so your taxable salary is decreased on paper but not in fact. As your taxable salary is reduced you pay less National Insurance on it, this IS free money. Your employer also pays less employers NI and many are happy to split this with you, more free money. Your overall income tax burden remains unchanged. If you are a higher rate taxpayer (which you want to avoid) it saves you having to claim that portion of it back via your self assessment, it all goes into your pension, so you get an administrative benefit as well

There is a little more to it than that but you get the gist.

Ifts

i_was_taught_2b_cautious wrote: »

How much can someone earn before they hit the 40% tax bracket?

Link here contains some helpful info and examples: What tax rates apply to me?
http://www.taxvol.org.uk/about-tax/tax-rates-apply/