Higher rate tax payer and interest?

bigfreddiel

I earn £1500 in untaxed interest per year. Along with my salary this just tips me into the 40% tax bars key by a few pounds!

So that means I only get £500 of interest tax free, so I will be paying 20% tax on the amount of up to the higher 40% tax limit and then 40% on everything above the limit. Is that correct?

How to get below the higher rate tax limit? Pay into a SIPP? Cut the amount of capital earning interest back? Note I have used my ISA allowance for 16/17. And I do not have a pension, I'm already taking a pension, my part time job and now my sp has tipped me into this higher bracket����

Cheers���� fj

Dazed_and_confused

bigfreddiel wrote: »

I earn £1500 in untaxed interest per year. Along with my salary this just tips me into the 40% tax bars key by a few pounds!

So that means I only get £500 of interest tax free, so I will be paying 20% tax on the amount of up to the higher 40% tax limit and then 50% on everything above the limit. Is that correct?

How to get below the higher rate tax limit? Pay into a SIPP? Cut the amount of capital earning interest back? Note I have used my ISA allowance for 16/17. And I do not have a pension, I'm already taking a pension, my part time job and now my sp has tipped me into this higher bracket����

Cheers���� fj

Where does 50% come into this? This may not be quite as simple as you anticipate.

There is no "tax free" interest but it seems as though you will have the first £500 of your interest taxed at 0℅ (this is commonly known as the personal savings allowance but is really a nil rate band - see assorted threads on the MSE savings/isa boards).
This £500 taxed at 0% actually uses part of your basic rate tax band so you will end up paying more tax at 40% than you currently envisage.

pete-20-11

So, you'll pay 0% tax on £500, 20% tax on almost £1000 of savings interest, and 40% on "a few pounds"

Alternatively, you could give a few pounds to charity and avoid the 40% tax rate (and get 0% on £1,000 of savings interest) by those few pounds?

bigfreddiel

Dazed_and_confused wrote: »

Where does 50% come into this? This may not be quite as simple as you anticipate.

There is no "tax free" interest but it seems as though you will have the first £500 of your interest taxed at 0℅ (this is commonly known as the personal savings allowance but is really a nil rate band - see assorted threads on the MSE savings/isa boards).
This £500 taxed at 0% actually uses part of your basic rate tax band so you will end up paying more tax at 40% than you currently envisage.

Thanks d & z, corrected the 50% to40%, and yes you have more accurately described it as a nil rate band, not tax free.

In fact my tax code is based on £11,000 plus £1,000 making it a nil rate band or tax free allowance of £12,000.

Since my sp has started. my coding is now based on £11,500, so I need to 'lose' some income somehow, see original post for my ideas, but open to other suggestions

Cheers fj

bigfreddiel

pete-20-11 wrote: »

So, you'll pay 0% tax on £500, 20% tax on almost £1000 of savings interest, and 40% on "a few pounds"

Alternatively, you could give a few pounds to charity and avoid the 40% tax rate (and get 0% on £1,000 of savings interest) by those few pounds?

That's a good idea, you can give to charity through your payroll I seem to recall? Cheers fj

Dazed_and_confused

bigfreddiel wrote: »

Thanks d & z, corrected the 50% to40%, and yes you have more accurately described it as a nil rate band, not tax free.

In fact my tax code is based on £11,000 plus £1,000 making it a nil rate band or tax free allowance of £12,000.

Since my sp has started. my coding is now based on £11,500, so I need to 'lose' some income somehow, see original post for my ideas, but open to other suggestions

Cheers fj

If pension contribution isn't an option then gift aid is an alternative but whilst this may be 'tax efficient' it means you spending money, albeit on on wood cause' to save a smaller amount of money (tax) elsewhere!

xylophone

albeit on on wood cause'

The Tree Council?:)

pete-20-11

bigfreddiel wrote: »

That's a good idea, you can give to charity through your payroll I seem to recall? Cheers fj

Yeah, you should be able to.

I'm not sure, but I assume giving away a bit might give you more money?

Rather than getting taxed at 40% on almost £1,000 of your savings interest
You should be taxed at 20% on £500 of the savings interest
So, that would mean you'd be £300 better off??


Actually, think I got that wrong.
20% tax on most of the £1,000 interest
So £100 better off?

hoc

This was asked so many times when first announced and nobody knew for sure and then the threads died out without a definitive answer. So, is it now definitely the case that this 1,000 limit is on top of (in addition to) the 43,000 higher rate threshold and that someone initially only qualifying for 500 due to being a higher rate earner could benefit from the 1,000 limit by moving from higher to basic rate (contributing to pension, charity, etc.)

pete-20-11

I think these two sum it up nicely

http://www.moneysavingexpert.com/savings/personal-savings-allowance

http://blog.moneysavingexpert.com/2016/02/25/the-new-personal-savings-allowance-means-some-people-will-be-better-off-earning-less-interest/

The savings interest is considered as income.

Your 1500 needs to be added to your other income, which will then allow you to determine if you are in the 40% Band, and thus how much PSA you get.

hoc

pete-20-11 wrote: »

I think these two sum it up nicely

http://www.moneysavingexpert.com/savings/personal-savings-allowance

http://blog.moneysavingexpert.com/2016/02/25/the-new-personal-savings-allowance-means-some-people-will-be-better-off-earning-less-interest/

The savings interest is considered as income.

Your 1500 needs to be added to your other income, which will then allow you to determine if you are in the 40% Band, and thus how much PSA you get.

Thank you. The second link in particular shows the unneeded complications in all this. A model where it isn't part of income would have been more consistent with other similar schemes (e.g. dividend allowance) but more importantly reduction to the allowance for higher rate seems undue complexity.

It's an extra 200 (40% on second 500) which isn't the end of the world but very annoying if you are just slightly over.