Tax on Pensions, interest and dividends.

checker6

I have recently retired and have scoured the internet and cant find out what tax I would pay if  my income puts me above the tax threshold, plus the £5K starting rate and I'm not sure if I qualify for the extra £1k as well?

I have two pensions which add up to  £6280 

Savings Interest of  £14,500

Dividends  £700

I live in Scotland and have two tax codes allocated for each of my pensions S1062N and S68T

I transferred my married allowance of £1250 to my husband a number of years ago

I did a calculation on a site online which was the only one I could find and it said I would pay £2700 in tax, this doesn't seem right? Will I only have to pay tax on anything above the threshold of all of the allowances or do I lose the 0% starter rate on the £5K because my combined is above the threshold? 

Thank you in advance for any information as I'm totally confused 🤔

Dazed_and_C0nfused

You ignore interest and dividends when looking at the savings starter rate band so you will get the full £5,000.

As you aren't liable to higher rate tax you will also get the full savings nil rate band (£1,000).

You will have the dividend nil rate band available (£2,000) as well so your liability, after taking into account your (reduced) Personal Allowance and all the 0% rate bands would be as follows,

Savings interest £3,470 x 20% = £694 (being Scottish resident for tax purposes doesn't affect this as the Scottish government doesn't set the tax rates for interest or dividends so the 20% savings basic rate is the relevant tax rate).

This should be paid by completion of a Self Assessment return (interest of £10k or more being a reason for a return being required per HMRC procedures).

Not sure what you have done to arrive at £2,700????

NB.  You can reduce the tax due by £252 by getting your full Personal Allowance back but if your husband has the full benefit from this it would saving you £252 but costing him £252 so no overall saving for you as a couple.

Dazed_and_C0nfused

Maybe the £2,700 was based on interest of £14,500 less £1,000 taxed at 0% = £13,500 x 20% = £2,700?

Unfortunately a lot of online tax checkers are too simplistic and don't factor in the full details

checker6

That's great thank you very much for your prompt reply, I really appreciate it.

What you have said makes more sense and I now understand the £2700 calculation from your most recent post.  This is the website I used and input the figures in my inital post for salary and interest apart from the dividend UK tax on interest calculator | Moneyed

I'm thinking about putting a chunk of our savings in to Premium Bonds for myself and my husband and also opening a Cash Isa with £20K for each of us as these are tax free and should reduce the amount of tax I'll be liable for?

Dazed_and_C0nfused

That calculator is seriously flawed!

That would reduce your tax liability but remember getting say 3% and paying 20% tax is better than a tax free 2%!

Jeremy535897

Putting the maximum allowed into cash ISAs and premium bonds will reduce your taxable interest, but to have interest income of £14,500 in today's environment I doubt they will make much dent in the taxable interest you receive. Your other option is to consider investments that aim to produce an appreciation in value without producing taxable income, so as to use your annual capital gains tax exemption of £12,300 (for each of you), but you would need to discuss this with a qualified financial adviser.

checker6

I've always been a bit wary of investments never having done anything like that before and would need to give this some thought.  I inhertited a considerable sum of money from my aunt which is why my annual interest has been bumped up.

We are thinking of moving to a bigger house so want to have access to the money we would need to buy it as cash buyers at short notice if we see a property we like without  needing to sell ours first.  

checker6

Dazed_and_C0nfused said:

That calculator is seriously flawed!

That would reduce your tax liability but remember getting say 3% and paying 20% tax is better than a tax free 2%!

I got a shock and panicked when I used that calculator and thought that maybe I would lose the £5k starting rate and be taxed at 20% over the personal allowance threshhold on my savings interest! That's when I started digging on the internet but couldn't find any definitive answers anywhere that you only pay the 20% above the combined allowance of the personal tax threshhold plus the 5K and 1K.

I look at this site quite a lot to check out savings interest rates and haven't seen any as high as 3%.  As I said in my previous post we do want to have access to our money at short notice if we decide to buy a house.  I do have some of it in fixed rate bonds but none of them are making anhything like 3%. The highest rate I've got is 2.25% for a five year bond with £30K  which matures next year.

Jeremy535897

checker6 said:

I've always been a bit wary of investments never having done anything like that before and would need to give this some thought.  I inhertited a considerable sum of money from my aunt which is why my annual interest has been bumped up.

We are thinking of moving to a bigger house so want to have access to the money we would need to buy it as cash buyers at short notice if we see a property we like without  needing to sell ours first.  

Buy the house first and then look at an investment strategy.

where_are_we

Remember to utilise your husbands personal savings allowance of £1000 providing he is a basic tax payer. Transfer some savings over to him so that he has £1000 of interest from his savings.

Dazed_and_C0nfused

where_are_we said:

Remember to utilise your husbands personal savings allowance of £1000 providing he is a basic tax payer. Transfer some savings over to him so that he has £1000 of interest from his savings.

For some that would be too high a risk to take just to save a little bit of tax.  Once transferred it would be the husband's money.  End of.