Could I have earned more by saving less (under £1000)?

vikkiew

In 16-17 I earned £1100 gross from bank interest. In my self assessment calculation this is reflected as first £500 tax free with the remaining £600 taxed at 40%, so £240 as tax to HMRC and £860 net for me.


When this rule came out I remember there was much debate on interpretation, hopefully it is crystal clear now. If my gross bank interest income had been below £1000 would I have received the entire amount, rather than the first £500, tax free? Or is the fact I am a higher rate tax payer in general make me ineligible for the greater £1000 limit?

Tom99

If you are a higher rate tax payer you get £500 saving allowance so the 1st £500 is tax free then the rest, whether its £200 or £600 is taxed at 40%.

00ec25

You get £500 because you are HR

https://www.gov.uk/government/publications/tax-and-tax-credit-rates-and-thresholds-for-2017-18/tax-and-tax-credit-rates-and-thresholds-for-2017-18

anselld

vikkiew wrote: »

In 16-17 I earned £1100 gross from bank interest. In my self assessment calculation this is reflected as first £500 tax free with the remaining £600 taxed at 40%, so £240 as tax to HMRC and £860 net for me.


When this rule came out I remember there was much debate on interpretation, hopefully it is crystal clear now. If my gross bank interest income had been below £1000 would I have received the entire amount, rather than the first £500, tax free? Or is the fact I am a higher rate tax payer in general make me ineligible for the greater £1000 limit?

It is the other way round, you could save more (tax ree) by earning less.

If you are well over the threshold there isn’t much you can do, but if you were reasonably close you could have made pension contributions to reduce your taxable income below the threshold.

Too late for 16-17 but might be considered for this year before April.

polymaff

vikkiew wrote: »

In 16-17 I earned £1100 gross from bank interest. In my self assessment calculation this is reflected as first £500 tax free with the remaining £600 taxed at 40%, so £240 as tax to HMRC and £860 net for me.


When this rule came out I remember there was much debate on interpretation, hopefully it is crystal clear now. If my gross bank interest income had been below £1000 would I have received the entire amount, rather than the first £500, tax free? Or is the fact I am a higher rate tax payer in general make me ineligible for the greater £1000 limit?

What PSA you get is purely a function of your tax status - which is a function of your total taxable income and certain reliefs - qualifying charitable giving and pension contributions being the most common reliefs exploited. So, basic rate: £1,000; higher rate: £500; additional rate: £0.

vikkiew

Good, I feel better it is this way, there is no way I can reduce my taxable income to being a basic rate payer so nothing I can do other than to just enjoy the extra £200 net.

RG2015

vikkiew wrote: »

Good, I feel better it is this way, there is no way I can reduce my taxable income to being a basic rate payer so nothing I can do other than to just enjoy the extra £200 net.

I assume that you have considered protecting some of your savings in cash ISAs.

I know that cash ISA rates are low at the moment but I noticed today that Virgin Money have identical rates for several ISA and non ISA savings products.

You could also consider a fixed term product which could move the tax liability into a later tax year although this would involve some future tax planning to avoid just deferring the tax.