Personal Savings Allowance - still confused.

StayinAlive

My understanding was that, if my taxable income from non-savings sources is £50,000 or below, I am allowed a PSA of £1000 on top of the normal personal allowance.

However, I have just read the following from the Gov.uk web site. "To work out your tax band, add all the interest you’ve received to your other income."

Doesn't that then put me in the higher tax band i.e. £51,000? If not, what is the point of that statement?

StayinAlive

zagfles

Your understanding is wrong. The gov.uk website is correct. If your income from non savings is £50k and £1k of savings income, your PSA is £500 and you'll get taxed at 40% on the other £500. Plus if applicable you'll lose the marriage allowance and have to pay tax on any child benefit you or partner get.

StayinAlive

So, if I "reduced" savings income to £500, that would still put me in the higher rate band even though I wouldn't actually pay any higher rate tax. How would that scenario affect marriage allowance?

Gov.uk says that you can benefit from MA if, inter alia, "your partner pays Income Tax at the basic rate, which usually means their income is between £12,501 and £50,000 before they receive Marriage Allowance". (Note the wording "pays Income Tax at the basic rate, not is in the basic rate tax band).

StayinAlive

Dazed_and_C0nfused

Savings interest taxed at the savings nil rate of 0% but within the higher rate tax band should not have any impact on Marriage Allowance.

But dividends taxed at the dividend nil rate (aka dividend allowance) within the higher rate band do make you a higher rate taxpayer for Marriage Allowance purposes and would therefore mean you lose that even though no higher rate tax is actually charged.

Who knows why one is different to the other but that's what the tax legislation states.

zagfles

Dazed_and_C0nfused said:

Savings interest taxed at the savings nil rate of 0% but within the higher rate tax band should not have any impact on Marriage Allowance.

But dividends taxed at the dividend nil rate (aka dividend allowance) within the higher rate band do make you a higher rate taxpayer for Marriage Allowance purposes and would therefore mean you lose that even though no higher rate tax is actually charged.

Who knows why one is different to the other but that's what the tax legislation states.

That's your interpretation. It was mine too from reading the legislation, but there are examples here where people have had the marriage allowance withdrawn because their savings income within the PSA took them over the higher rate threshold.  See https://forums.moneysavingexpert.com/discussion/5253467/marriage-allowance/p125

Do you have any evidence that HMRC have changed their tune on this? Rather than just your interpretation of the legislation?

xylophone

https://www.tax.org.uk/media-centre/blog/media-and-politics/when-allowance-not-allowance-and-why-does-it-matter