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

polymaff

talexuser wrote: »

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?

AFAIK, the only real rate stinger is when you claim PSA and you just cross the basic/higher rate threshold. Suddenly you pay £100 more tax - plus any tax on the pound that does the damage - 10,000% - ouch! The problem is that that extra poind could be taxable non-savings income, taxable savings income or dividend income, so the best thing might be to try to keep your adjusted net income below the basic-higher rate threshold.

https://www.gov.uk/guidance/adjusted-net-income

talexuser

Phew, thanks, that link confuses me even more! If you are a retired basic rate taxpayer under the threshold paying the max £2880 into a SIPP, which is then grossed up to £3600 in the fund, does the SIPP affect your adjusted net income? Or only when you move into higher rate tax to avoid the extra 20%? Sorry for all the questions

polymaff

talexuser wrote: »

Phew, thanks, that link confuses me even more! If you are a retired basic rate taxpayer under the threshold paying the max £2880 into a SIPP, which is then grossed up to £3600 in the fund, does the SIPP affect your adjusted net income? Or only when you move into higher rate tax to avoid the extra 20%? Sorry for all the questions

Yes, but it is only relevant when you move into higher rate tax. See the example "Clara" in the linked-to site. On the model, lift the £43,000 line by £3,600. That is actually what HMRC do as they process your tax return - according to Version 13 of the document I referred to earlier.

talexuser

That's very helpful, thanks. :beer: