Savings Interest - Self Assessment

colsten

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...

How do you think most people with a large share portfolio came to acquire said portfolio? Is there a remote possibility that they bought the shares with money that they earned whilst working, or that they received in lieu of salary whilst working?

eskbanker

Dazed_and_C0nfused said:

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

Assuming £1,000 from the personal savings allowance ('allowance'!), on what basis would the second £1,000 of savings interest income be taxed at 0% here?

Dazed_and_C0nfused

ColdIron said:

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?

I don't think so no.  There are more complicated scenarios where HMRC would say file a paper return but I think they can cope with this one.

meatandtwoveg

Dazed_and_C0nfused said:

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.

Why is a further £2000 in dividends tax free and all your savings income tax free?
Is it because you have no earned income so using up the $5000 savings allowance starter band?

Dazed_and_C0nfused

eskbanker said:

Dazed_and_C0nfused said:

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

Assuming £1,000 from the personal savings allowance ('allowance'!), on what basis would the second £1,000 of savings interest income be taxed at 0% here?

The Personal Savings Allowance doesn't come into the equation here.

The £2,000 is from the savings starter rate band.

ColdIron

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...

It was better before 2016 when basic rate taxpayers paid no tax on dividends, Osborne introduced the 7.5% tax with £5,000 taxed at 0%. Then Hammond reduced this to the present £2,000 in 2018

Dazed_and_C0nfused

meatandtwoveg said:

Dazed_and_C0nfused said:

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.

Why is a further £2000 in dividends tax free and all your savings income tax free?
Is it because you have no earned income so using up the $5000 savings allowance?

£2,000 interest is taxed (at 0%) using £2,000 of the £5,000 the savings starter rate band

£2,000 dividends is taxed (at 0%) using all £2,000 of the dividend nil rate band (aka dividend allowance).

eskbanker

Dazed_and_C0nfused said:

eskbanker said:

Dazed_and_C0nfused said:

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

Assuming £1,000 from the personal savings allowance ('allowance'!), on what basis would the second £1,000 of savings interest income be taxed at 0% here?

The Personal Savings Allowance doesn't come into the equation here.

The £2,000 is from the savings starter rate band.

Ah right, I was under the impression that that band wasn't applicable to those with income of £27K but think I get the distinction you're making, i.e. that this rate is still available if there's low earned income.  https://www.gov.uk/apply-tax-free-interest-on-savings doesn't really make this clear but no doubt it's spelt out better in more comprehensive documents elsewhere!

Dazed_and_C0nfused

eskbanker said:

Dazed_and_C0nfused said:

eskbanker said:

Dazed_and_C0nfused said:

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

Assuming £1,000 from the personal savings allowance ('allowance'!), on what basis would the second £1,000 of savings interest income be taxed at 0% here?

The Personal Savings Allowance doesn't come into the equation here.

The £2,000 is from the savings starter rate band.

Ah right, I was under the impression that that band wasn't applicable to those with income of £27K but think I get the distinction you're making, i.e. that this rate is still available if there's low earned income.  https://www.gov.uk/apply-tax-free-interest-on-savings doesn't really make this clear but no doubt it's spelt out better in more comprehensive documents elsewhere!

Correct.  It wouldn't be for most people but the specific make up of income in this situation means it is of benefit.

meatandtwoveg

Since starting this thread. I've closed lots of accounts with small amounts balances in total.
Up till today, if these totals we're my full tax year totals ending April 5th 2021, would I need to submit a self assessment. As I owe no tax.
Capital Gains on all shares bought and sold= £4800.00 after all buying and selling costs.
Dividends received = £2600.00
Income from Savings interest and employment = £9000.00
I think it's all free of tax?
Sorry but my first year of dealing in shares. A newbie.