Are my tax assumptions correct please?

parcival

I am trying to ensre we max out Mrs Parcival's Income tax allowance.

She has her £12500 personal allowance and I have given her 10% of mine so making a personal allowance of £13750.

Her income is £11,500 from company pensions (no state pension for 2 more years). She also get about £2000 in bank interest.

She is about to put into payment another small pension that will give her another £2000 of income making a total of £13500 plus the bank interest.

Am I correct in thinking that all of the bank interest will be within the Zero rate band?

Many thanks.

Dazed_and_confused

She has her £12500 personal allowance and I have given her 10% of mine so making a personal allowance of £13750.

She cannot have a Personal Allowance greater than £12,500.

Being the recipient of Marriage Allowance entitles your wife to a credit against her tax liability. In the current tax year this is worth £250 (£1,250 x 20%).

HMRC may give her tax code allowances of £13,750 but this is just their way of ensuring she gets the benefit of Marriage Allowance during the year.

The outcome is the same for most people but it can be significantly different for some. In your wife's case it changes the amount of savings starter rate band which is available to her.

She is about to put into payment another small pension that will give her another £2000 of income making a total of £13500 plus the bank interest.

So in the current tax year she will be liable to tax on £1000 and depending on where she is resident for tax purposes the tax liability on this would be £190 or £200. With the benefit of the Marriage Allowance credit she would have no tax to actually pay. She cannot have the unused Marriage Allowance credit repaid to her

Am I correct in thinking that all of the bank interest will be within the Zero rate band?

Never hear of "Zero" rate band. The interest would be taxed at the savings starter rate, which is 0% in 2019:20.

As she is liable to tax on £1,000 of her pension income she has a maximum of £4,000 savings starter rate band left available.

If she were fortunate enough to use all of that then the savings nil rate, also 0% and commonly, but confusingly, known as the Personal Savings Allowance, would come into play. This is a maximum of another £1,000 taxed at 0%.

weezie7

Don't want to hijack parciavals post, but think I am asking a similar question:

I have pension income of £11,986, (£136 over Personal allowance), no state pension yet! Paid tax initially, so have claimed tax back, successfully.

Understand that 'threshold' is £16,850, which includes the starting rate for savings income of £5k..

I also have savings income (ISA, interest, dividends) of £4643. In my head, pension income (£11986) + savings income (£4643) = £16,629 - which is under the £16,850 threshold.

Am I right in thinking that my savings income, as it is less than the £5k, is not taxed and the only bit I am taxed on is the £136 over the personal allowance?

Just trying to get it clear in my head and see if I need to change anything to minimize tax due! Many thanks.

xylophone

The standard personal allowance for 2019-20 is £12,500.

https://www.litrg.org.uk/tax-guides/other-tax-issues/savings-and-tax

For a more detailed look at the PSA see our factsheet Savings and dividend tax which also includes examples of how savings income within the PSA uses up the rate bands and how the PSA interacts with the dividend allowance.

weezie7

Thanks xylophone, my figures were for 18-19, obviously would need adjusting for 19-20. Do you know if the 'threshold' amount, for 19-20, still £16,850, or has it gone up?

xylophone

Do you know if the 'threshold' amount, for 19-20, still £16,850, or has it gone up?

You have pension, some non ISA savings interest and dividend income.

Download the fact sheet (entitled savings and dividend tax under the heading How is bank and building society interest taxed?) linked in previous to see how these interact.

ISA interest/income is not taxable and should not be included in your calculation.

weezie7

I have read some of the article you highlighted, and looked at some of the examples.
I still don't understand what the PSA of £1,000 and yet HMRC talk about £17,500 and then a £5k earned income.

What is the difference between the £1000 and up to £5k earned income?

polymaff

weezie7 wrote: »

Thanks xylophone, my figures were for 18-19, obviously would need adjusting for 19-20. Do you know if the 'threshold' amount, for 19-20, still £16,850, or has it gone up?

The various 0% figures you are thinking of have not increased - only the Personal Allowance has changed since 18/19

RIP Rooker-Wise..:)

Dazed_and_confused

I have read some of the article you highlighted, and looked at some of the examples.
I still don't understand what the PSA of £1,000 and yet HMRC talk about £17,500 and then a £5k earned income.

What is the difference between the £1000 and up to £5k earned income?

You seem to be getting somewhat confused with tax years and what income needs to be included.

Are you able to provide details of your expected income for the current tax year?

The easiest way to explain things is if you divide your income into three types as they all have different tax rates applicable

Wages, pensions, rental income etc to start.

Then savings interest.

And finally dividends.

You don't need to complicate things by including non taxable income such as ISA interest.

xylophone

What is the difference between the £1000 and up to £5k earned income?

Are you getting confused between the "starting rate for savings" and the "Personal Savings Allowance"?

See the examples set out here

https://www.litrg.org.uk/tax-guides/tax-basics/what-tax-rates-apply-me#tom

Suppose your pension income is £12000, your non isa savings interest £1500 and your non isa dividend income £1500.

You would have £500 of your personal allowance to set against your savings interest and the remainder of the savings interest would fall within the "starting rate for savings" so no tax would be due.

The dividend income would fall within the dividend allowance so no tax would be due.

polymaff

parcival wrote: »

I am trying to ensre we max out Mrs Parcival's Income tax allowance.

She has her £12500 personal allowance and I have given her 10% of mine so making a personal allowance of £13750.

Her income is £11,500 from company pensions (no state pension for 2 more years). She also get about £2000 in bank interest.

She is about to put into payment another small pension that will give her another £2000 of income making a total of £13500 plus the bank interest.

Am I correct in thinking that all of the bank interest will be within the Zero rate band?

You (and Weezie7) are justified in being confused by the disgraceful way HMRC have presented this issue to the public. Talk about Spin !

In the case you are describing - no dividend income, not a higher-rate taxpayer:


1. compare the non-savings taxable income with the personal allowance.

If the personal allowance is less, then tax will be payable on the difference. Otherwise you'll have some personal allowance (the difference) left over.

2. Your taxable savings income will be taxed at 0% on the total of:

a) £5,000 less the amount taxable in stage 1 (the starting rate for savings), and,
b) £1,000 (the personal savings allowance), and,
c) whatever personal allowance is left over from stage 1

- used up in that order, and only as required.

The rest of the taxable savings income is taxable at more than 0%.


If there had been taxable dividend income, then:


3. Your taxable dividend income will be taxed at 0% on the total of:

a) £2,000 (the dividend allowance), and,
b) whatever personal allowance is left over from stage 2.

- used up in that order, and only as required.

The rest of the taxable dividend income is taxable at more than 0%.



As the others have mentioned - note the non-mention of any effect of MAT during this calculation. To the donor of MAT, MAT reduces the Personal Allowance fed into the calculation. To the beneficiary of MAT, MAT is purely an offsetting credit on your tax statement.


E&OE..:)