Savings Interest - Self Assessment

meatandtwoveg

Wow, so say for example you are retired, no earned income at all. You have not reached state pension retirement age.
You recieve £25,000.00 in dividend income
You recieve £2000.00 in savings interest income
Total £27,000.00 income 
Dividend income tax would be £25k minus £2k then taxed at 7.5%
Savings income tax would be £2k minus £1k then taxed at 20%
So yo total tax bill would be £1725 Dividend tax plus £200 Savings income tax
Total tax bill £1925
Thats an awfully low tax bill for an income of £27k

ColdIron

Any private pension income?

eskbanker

meatandtwoveg said:

Wow, so say for example you are retired, no earned income at all. You have not reached state pension retirement age.
You recieve £25,000.00 in dividend income
You recieve £2000.00 in savings interest income
Total £27,000.00 income 
Dividend income tax would be £25k minus £2k then taxed at 7.5%
Savings income tax would be £2k minus £1k then taxed at 20%
So yo total tax bill would be £1725 Dividend tax plus £200 Savings income tax
Total tax bill £1925
Thats an awfully low tax bill for an income of £27k

The actual tax bill would be lower, as you also have the personal tax allowance of £12,500, so that would account for £1K of savings income and £11,500 of dividend income, so you'd only end up with £11,500 of dividend income payable at 7.5%, therefore £862.50 tax.

meatandtwoveg

ColdIron said:

Any private pension income?

NONE

Dazed_and_C0nfused

You would have to pay £787.50 in tax.

You can set all of your Personal Allowance against the dividend income.

Leaving £12,500 dividends and £2,000 interest to actually be taxed.  The order that is taxed cannot be manipulated so it would be,
Interest
£2,000 x 0% = £0.00
Dividends
£2,000 x 0% = £0.00
£10,500 x 7.5% = £787.50

This is a situation where I'd you were married and your spouse was paying enough 20% tax it would be beneficial, as a couple, for you to apply for Marriage Allowance.  You would have to pay an extra £93.75 but your spouse would save £250.

meatandtwoveg

eskbanker said:

meatandtwoveg said:

Wow, so say for example you are retired, no earned income at all. You have not reached state pension retirement age.
You recieve £25,000.00 in dividend income
You recieve £2000.00 in savings interest income
Total £27,000.00 income 
Dividend income tax would be £25k minus £2k then taxed at 7.5%
Savings income tax would be £2k minus £1k then taxed at 20%
So yo total tax bill would be £1725 Dividend tax plus £200 Savings income tax
Total tax bill £1925
Thats an awfully low tax bill for an income of £27k

The actual tax bill would be lower, as you also have the personal tax allowance of £12,500, so that would account for £1K of savings income and £11,500 of dividend income, so you'd only end up with £11,500 of dividend income payable at 7.5%, therefore £862.50 tax.

Bloody hell. It's no wonder people with large share portfolio's can retire on a good income and pay such little tax. It really does not pay to work nowadays.
My marginal rate is so much higher as i have to work...

Dazed_and_C0nfused

meatandtwoveg said:

eskbanker said:

meatandtwoveg said:

Wow, so say for example you are retired, no earned income at all. You have not reached state pension retirement age.
You recieve £25,000.00 in dividend income
You recieve £2000.00 in savings interest income
Total £27,000.00 income 
Dividend income tax would be £25k minus £2k then taxed at 7.5%
Savings income tax would be £2k minus £1k then taxed at 20%
So yo total tax bill would be £1725 Dividend tax plus £200 Savings income tax
Total tax bill £1925
Thats an awfully low tax bill for an income of £27k

The actual tax bill would be lower, as you also have the personal tax allowance of £12,500, so that would account for £1K of savings income and £11,500 of dividend income, so you'd only end up with £11,500 of dividend income payable at 7.5%, therefore £862.50 tax.

Bloody hell. It's no wonder people with large share portfolio's can retire on a good income and pay such little tax. It really does not pay to work nowadays.
My marginal rate is so much higher as i have to work...

I've managed to shave nearly another 10% off for you 🙂

ColdIron

Savings are taxed before dividends. So my working is: Your £2,000 savings interest is covered by the PA as is £10,500 of dividends. £2,000 of the remaining £14,500 dividends would be taxed at 0% leaving £12,500 taxed at 7.5% = £937.50. Willing to be corrected if I have missed something

Dazed_and_C0nfused

You can allocate the Personal Allowance in whatever way will produce the lowest liability.

What you can't do is then alter the order remaining income is taxed.

Firstly earned income then savings and finally dividends.

In this instance it is better to have the savings interest taxed, at 0%, and use the Personal Allowance elsewhere.

ColdIron

Am I correct when I say that it won't work out like that if you do self assessment online, you would need to make a paper return?