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

Ifts

ColdIron wrote: »

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

I think this may be covered by their Personal Savings Allowance?

If non savings income is between £16,000 and £43,000 - £1000 of savings income will be covered by the Personal Savings Allowance.

If non savings income is between £43,001 and £150,000 - only £500 of savings income will be covered by the Personal Savings Allowance.

ColdIron

Ifts wrote: »

I think this may be covered by their Personal Savings Allowance?

Yes you are right, I was just subtracting the threshold, 43K, from the balance without applying the PSA

talexuser

Has anyone found a spreadsheet for 2016/17 where you can input

taxable income, gross savings interest, gross dividends

personal allowance, net pension contribution, I suppose any other allowances (VCT, blind, age etc)

I found partial ones for salary but not one combined with interest/dividend, tried to do my own but not sure how the allowances interact, trying to find the marginal rates of various taxable interest versus taxable dividends as you move into higher rate.

polymaff

talexuser wrote: »

Has anyone found a spreadsheet for 2016/17 where you can input

taxable income, gross savings interest, gross dividends

personal allowance, net pension contribution, I suppose any other allowances (VCT, blind, age etc)

I found partial ones for salary but not one combined with interest/dividend, tried to do my own but not sure how the allowances interact, trying to find the marginal rates of various taxable interest versus taxable dividends as you move into higher rate.

Comprehensive - and correct - tax assessment software doesn't get written until HMRC have defined how they plan to apply their rules. For 2015/16 this didn't happen until November 2015 - at version 13!

You've my model to get spread-sheeting from, though.

talexuser

polymaff wrote: »

You've my model to get spread-sheeting from, though.

That's exactly my starting point :T, but trying to see any marginal rate relationship between splitting money between saving interest and dividends as you move from basic into higher rate tax.

ffacoffipawb

Ifts wrote: »

I think this may be covered by their Personal Savings Allowance?

If non savings income is between £16,000 and £43,000 - £1000 of savings income will be covered by the Personal Savings Allowance.

If non savings income is between £43,001 and £150,000 - only £500 of savings income will be covered by the Personal Savings Allowance.

Its taxable income that counts, not non savings income. Taxable income includes savings income, so my previous post was correct apart from the typo that 40% tax is due on £100 (i.e. £40) in the second example.

susiem

I only have my State Pension as income plus any interest on savings, therefore I don't at the moment pay tax as my income is well below the personal allowance. This year however my interest will be just over the £1000 goverment allowance, will I have to fill in a tax return?

polymaff

talexuser wrote: »

That's exactly my starting point :T, but trying to see any marginal rate relationship between splitting money between saving interest and dividends as you move from basic into higher rate tax.

If you have the ability to change the amount of income you receive as interest and/or as dividends (e.g. you control one or more companies) then this is worthwhile. Otherwise those payments are what they are, and cannot be mis-declared.

Things to bear in mind:

The tax on savings has always been calculated after that on non-savings income, and before the tax on dividend income. The slight change to that in 2016/17 will be that the PSA is a function of adjusted net income - and hence of dividend income.

With the new "floating" dividend allowance, you can be a higher rate tax payer without paying a penny at the higher rate. (e.g. non-savings taxable income of £42,000, taxable savings income of £1,400; non-savings taxable income of £40,000, dividend income of £4,500)

The dividend tax rates are significantly lower. 7.5% versus 20%, 32.5% versus 40%, the weird 38.1% versus 45% - although if "your" company has already paid corporation tax, that complicates the comparison.


I've written a spreadsheet that deals with the three types of income and the allowances relevant to myself - but I still fall back on the "column" model to help me "what if".

polymaff

susiem wrote: »

I only have my State Pension as income plus any interest on savings, therefore I don't at the moment pay tax as my income is well below the personal allowance. This year however my interest will be just over the £1000 goverment allowance, will I have to fill in a tax return?

For 2016/17, on the basis of the above, and assuming that your state pension is about £8,000, then you can receive up to £9,000 (17,000 minus that £8,000) of taxable savings income before any tax is due. On that basis, I doubt that they'll request a return.

Forget the £1,000 allowance. It is just one, small, part of the £17,000 allowances claimable by someone in your circumstances.

talexuser

polymaff wrote: »

With the new "floating" dividend allowance, you can be a higher rate tax payer without paying a penny at the higher rate. (e.g. non-savings taxable income of £42,000, taxable savings income of £1,400; non-savings taxable income of £40,000, dividend income of £4,500)

That's exactly the scenario I'm wrestling with. Say you are just under the 43k with savings interest - you are a basic rate taxpayer, and any savings over a grand is taxed 20%. Now you have the option of transferring some savings from interest to dividends.

You choose to put several grand from savings into non ISA stocks and get more in dividends. The dividends now take you over the 43k. even with the lower savings interest. You are a high rate taxpayer but your dividends are just less than 5k, so no tax on the dividends.

Now income and savings are still less than 43k so there is no extra tax to be paid on the interest?

So I get an interactive table to input figures if you're paying the basic dividend tax, one for higher dividend tax, but fall down on the "what ifs" combining both then adding income tax and savings.

I'm just wondering if there is a marginal rate peak somewhere as you go through the various jumps into higher tax?