Joint accounts and the new PSA tax rules

polymaff

voddyman wrote: »

So, am i correct in saying that, my wife and I can earn up to £1000 each in interest before we have to pay tax, even though all our savings are in joint names?

Don't get fixated upon the £1,000. Here are some guidelines about 2016/17. Imagine your own income as a column with the upper part your portion (all of your own, 50% of the joint) of the taxable savings income and the lower part your earnings and pension income.

Now draw lines across the column at £11,000, £16,000 and £43,000.

The following statements apply, in the order given:-

1. Anything below the £11,000 line is taxed at 0%.

2. Any taxable savings income below the £16,000 line is taxed at 0%.

3. If the total column exceeds the £43,000 line then up to a further £500 of taxable savings income is taxed at 0%. If the column doesn't exceed the £43,000 line then make that £500 of taxable savings income £1,000.

4. What is left is taxable - below the £43,000 line at basic rate, above at higher rate.


Then do exactly the same for your wife. Her affairs are quite separate from yours - except, as others have mentioned, if you choose to transfer some of one's personal allowance to the other. In that case, the lines across one column move up, and the other's move down by the transfer amount.

As you haven't, I haven't - commented on dividends or other complications.

LXdaddy

polymaff wrote: »

Don't get fixated upon the £1,000. Here are some guidelines about 2016/17. Imagine your own income as a column with the upper part your portion (all of your own, 50% of the joint) of the taxable savings income and the lower part your earnings and pension income.

Now draw lines across the column at £11,000, £16,000 and £43,000.

The following statements apply, in the order given:-

1. Anything below the £11,000 line is taxed at 0%.

2. Any taxable savings income below the £16,000 line is taxed at 0%.

3. If the total column exceeds the £43,000 line then up to a further £500 of taxable savings income is taxed at 0%. If the column doesn't exceed the £43,000 line then make that £500 of taxable savings income £1,000.

4. What is left is taxable - below the £43,000 line at basic rate, above at higher rate.


Then do exactly the same for your wife. Her affairs are quite separate from yours - except, as others have mentioned, if you choose to transfer some of one's personal allowance to the other. In that case, the lines across one column move up, and the other's move down by the transfer amount.

As you haven't, I haven't - commented on dividends or other complications.

polymaff - I really like this approach/explanation. But at first reading I was confused on the order of the income segments - basically is the column growing down a spread sheet or is it building up. I deal in spread sheets every day so my starting paradigm might be skewed.


Could I offer a rewording for you to critique...

Imagine your own income as a pile of money. Start with your earnings and pension income. Then put on top of that your taxable savings income (all of your own, 50% of the joint)


Now draw lines across the column at £11,000 up, £16,000 up and £43,000 up.

The following statements apply, in the order given:-

1. Anything below the £11,000 line is taxed at 0%.


2. To allow for the PSA, if the total column doesn't exceed the £43,000 line then move the middle line up by £1,000 to £17,000. If the total column exceeds the £43,000 line then move the middle line up by £500 to £16,500.

3. Any taxable savings income below the middle line (£16,000, £16,500 or £17000) is taxed at 0%.

4. What is left is taxable - below the £43,000 line at basic rate, above at higher rate.

Now a question from me... is the £5,000 of savings allowance - is that only applicable if the taxable earned income is below £11,000? Or does someone with say £14,000 earned income get £2K of taxable savings interest at 0%?

LXdaddy

LXdaddy wrote: »

Now a question from me... is the £5,000 of savings allowance - is that only applicable if the taxable earned income is below £11,000? Or does someone with say £14,000 earned income get £2K of taxable savings interest at 0%?

Answered by bowlhead in http://forums.moneysavingexpert.com/showpost.php?p=70444694&postcount=16 someone with £14K earned income would have £2K left from the 5K 0% starting rate (plus £1K of PSA)

polymaff

LXdaddy wrote: »

polymaff - I really like this approach/explanation. But at first reading I was confused on the order of the income segments - basically is the column growing down a spread sheet or is it building up. I deal in spread sheets every day so my starting paradigm might be skewed.

Columns, in buildings and in graphics - even human beings - grow up from a baseline. Y axes in cartesian graphs increase in an upward direction. Just to make this clear, I nominate which sections of the column is which. I wonder if anyone else has suffered this particular confusion?

You might like to see the more complex version of this model, including the treatment of dividends, at:

http://forums.moneysavingexpert.com/showpost.php?p=70422918&postcount=9

where I make it clear that this is meant to be a visual model.

LXdaddy wrote: »

Now a question from me... is the £5,000 of savings allowance - is that only applicable if the taxable earned income is below £11,000? Or does someone with say £14,000 earned income get £2K of taxable savings interest at 0%?

This rule from my model:

2. Any taxable savings income below the £16,000 line is taxed at 0%.

directly addresses your Starting Rate Allowance question.

The strength, I hope, of my model is that it leaves no room for ambiguity and is fully comprehensive - I hope. If I'm right then there is no "but what about this particular scenario?" type of question that it doesn't unambiguously address.

I hope


BTW - part of understanding the 2016/17 system is to get the terminology right. Personal Allowance, Starting Rate Allowance, Personal Savings Allowance and Dividend Allowance. Loose terminology such as "savings allowance" just isn't on.

polymaff

LXdaddy wrote: »

Could I offer a rewording for you to critique...

Imagine your own income as a pile of money. Start with your earnings and pension income. Then put on top of that your taxable savings income (all of your own, 50% of the joint)

Now draw lines across the column at £11,000 up, £16,000 up and £43,000 up.

The following statements apply, in the order given:-

1. Anything below the £11,000 line is taxed at 0%.


2. To allow for the PSA, if the total column doesn't exceed the £43,000 line then move the middle line up by £1,000 to £17,000. If the total column exceeds the £43,000 line then move the middle line up by £500 to £16,500.

3. Any taxable savings income below the middle line (£16,000, £16,500 or £17000) is taxed at 0%.

It's only my opinion, but I believe in brevity. The more you write, the more you are likely to lose focus and to make errors, confuse the reader and make it more difficult to add features to an enhanced version without significant alterations. It is a dictum in the software industry that good sofware is that which still seems to be as structured at version 10 as it was at version 1. Just on that point, btw, you have the terms "pile" and "column" in your version 2. Oops!

LXdaddy

My apologies to polymaff.


I realised after writing that my rewording, which was intended to remove my confusion between a column of figures written in a ledger (from the top on the page towards the bottom) and a column in a building (from the foundation up to the roof) also introduced an error.


The Personal Savings Allowance is not merely available at the £16K line.


I humbly withdraw.

Eco_Miser

polymaff wrote: »

Columns, in buildings and in graphics - even human beings - grow up from a baseline. Y axes in cartesian graphs increase in an upward direction. Just to make this clear, I nominate which sections of the column is which. I wonder if anyone else has suffered this particular confusion?

Despite using spreadsheets a lot, I didn't even think of a spreadsheet column in this context. So no confusion here.

badger09

polymaff wrote: »

It's only my opinion, but I believe in brevity. The more you write, the more you are likely to lose focus and to make errors, confuse the reader and make it more difficult......

Unless your name is bowlhead99:D


apologies to polymaff for editing:o