Understanding Tax - basic Question Help Please

SPL

Hi

Apologies in advance as I am sure that this must be a very simple question!

I would like to know if, as a higher rate tax payer all my income is taxed at the higher rate or is it just the amount that is earned over the £40k (ish)thresholds?

Thanks in advance

CLAPTON

only the amount over 39825 is taxed at 40%... the other is either tax free (the first 5225) or taxed at 10% (the next 2230) or at 22% (the next 32270)

SPL

thanks

how does the bank know if you are a higher rate tax payer or not when it comes to taxing any interest on your savings (sory am quite novice but trying to learn

mikewebs

Basically the bank doesn't know - it's up to you to inform HMRC that you have savings income and then they will require you to complete a tax return

SPL

thanks again for your help - i have only just gone into the higher bracket so i guess i would have to do this next year when i get any interest on my isa ?

is there anything else I should know about being in this bracket/ seems to me to be making me worse off as I am only just about the threshold and now will lose out on my interest etc

olly300

ISAs are not taxed so you don't need to report it to the Taxman.

However the interest on your current account, any savings that are not in an ISA or dividend income needs to be reported to the Taxman.

Incidentally if you have a pension you are not worse off being a higher rate tax payer.

SPL

thanks - what would I do without you all

i appreciate the advice

tyllwyd

Is it interest on savings you are mainly worried about? As someone else said, your ISA isn't taxed anyway. And if you were a basic rate taxpayer, the most likely thing is that you were paying 20% tax deducted at source on your savings interest. So the increase from 20% to 40% mightn't be quite as much of a jump as you expected.
http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnSavingsAndInvestments/DG_4015739

Billionpounddreamer

You could also transfer this money to your spouses/civil partner's account who, if they are taxed on basic rate, starting arte, or aren't taxed at all, will be able to achieve a higher tax saving on interest in current accounts, divi's etc

SPL

great thank you -