Higher rate tax payer and interest?

zagfles

hoc wrote: »

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.

It's an extra £100 max - see http://blog.moneysavingexpert.com/2016/02/25/the-new-personal-savings-allowance-means-some-people-will-be-better-off-earning-less-interest/

But it's easy to get around if you're close to the threshold - use a SIPP, or gift aid. Even if you miscalculate and don't realise till after the end of the tax year it isn't too late - you can backdate gift aid payments made between the end of the tax year and when you do your SA return. (not sure whether people outside of SA can do this, but I think anyone can register and submit a SA tax return).

MrBeans

Yes, put a bit into a SIPP.

Though what Hammond will do to change Osborne's thresholds and tax-free wheezes is anyone's guess.

hoc

zagfles wrote: »

It's an extra £100 max - see http://blog.moneysavingexpert.com/2016/02/25/the-new-personal-savings-allowance-means-some-people-will-be-better-off-earning-less-interest/

But it's easy to get around if you're close to the threshold - use a SIPP, or gift aid. Even if you miscalculate and don't realise till after the end of the tax year it isn't too late - you can backdate gift aid payments made between the end of the tax year and when you do your SA return. (not sure whether people outside of SA can do this, but I think anyone can register and submit a SA tax return).

OK, now I'm confused. It seems the same outcome...

If I get 500 tax free as a higher rate, I avoid 500 x 40% = 200.

If I drop from higher rate to basic and get 1000 tax free, I avoid 1000 x 20% = 200.

Where am I going wrong with this?

Dazed_and_confused

hoc wrote: »

OK, now I'm confused. It seems the same outcome...

If I get 500 tax free as a higher rate, I avoid 500 x 40% = 200.

If I drop from higher rate to basic and get 1000 tax free, I avoid 1000 x 20% = 200.

Where am I going wrong with this?

The basic principle of each "allowance" potentially saving £200 is fine but the unforeseen bit is that when you are a 40% payer the £500 taxed at 0% uses some of your basic rate allowance so you end up paying more tax on overall than you would expect in some situations

Dazed_and_confused

hoc wrote: »

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.

Think you've misunderstood something here, have a look at example 6 in the dividend allowance factsheet, the dividend allowance is similar to the personal savings allowance in as much as the whole of the dividend income is still treated as taxable income, it's not actually an allowance as such

https://www.gov.uk/government/publications/dividend-allowance-factsheet/dividend-allowance-factsheet

rmh29

I am facing a situation similar to the one below, though I have changed/simplified the amounts.

Say my salary is £46,000, and my pension is £3,250. My taxable pay is £42,750.

I have savings earning interest of £1,500.

I made gift aided donations of £1,000.

My taxable pay and interest is £44,250. Concerning the gift aid, the HMRC webpage "Personal Allowances: adjusted net income" says take off the 'grossed-up' amount from your net income. So the £1,000 becomes £1,250.

Take £1,250 from £44,250, the final taxable amount is £43,000, the higher rate tax threshold, so only basic tax is paid.

This means my personal savings allowance is £1,000. If I was paid £100 more and paid higher rate tax, my allowance would be £500, and I'd be slightly worse off.

I have to admit I am slightly perplexed with the 'grossed-up' calculation on the gift aid. I don't like the thought of paying more tax but for a small additional charitable donation, if my view is wrong. I'd rather make alterations now before having to put pen to paper on HMRC forms. I'd be grateful for confirmation! Many thanks.

zagfles

rmh29 wrote: »

I am facing a situation similar to the one below, though I have changed/simplified the amounts.

Say my salary is £46,000, and my pension is £3,250. My taxable pay is £42,750.

I have savings earning interest of £1,500.

I made gift aided donations of £1,000.

My taxable pay and interest is £44,250. Concerning the gift aid, the HMRC webpage "Personal Allowances: adjusted net income" says take off the 'grossed-up' amount from your net income. So the £1,000 becomes £1,250.

Take £1,250 from £44,250, the final taxable amount is £43,000, the higher rate tax threshold, so only basic tax is paid.

This means my personal savings allowance is £1,000. If I was paid £100 more and paid higher rate tax, my allowance would be £500, and I'd be slightly worse off.

I have to admit I am slightly perplexed with the 'grossed-up' calculation on the gift aid. I don't like the thought of paying more tax but for a small additional charitable donation, if my view is wrong. I'd rather make alterations now before having to put pen to paper on HMRC forms. I'd be grateful for confirmation! Many thanks.

Gift aid is grossed up because the charity reclaims basic rate tax so make a £80 contribution and the charity claims £20 basic rate off HMRC, so the gross donation is £100.

Technically ANI isn't used for gift aid, your taxable income is not reduced but your basic rate band is increased by the grossed up gift aid. It works out the same, ie you'll still be a basic rate taxpayer in your scenario.