Questions on Tax, Self-Assessment, Child Benefit & Savings

buildingbee

Hello everyone.

Firstly I want to thank you for having a wonderful forum.  I've had to ask one of the kids to setup my forum account as I'm not very tech savvy.  I would be most grateful if you could help us on this confusing problem.

OUR CIRCUMSTANCES

Work: I earn £23k per year and partner due to children and other caring responsibilities works zero hours contract and earns only £6k per year.
Benefits: We get Child Benefit for 2 children
Savings: We have over £30k in savings (We expect to make around £1200 in interest for the year)
Any other income or properties: Other than our own home, no other income or properties.


QUESTIONS

1. Will the above circumstances affect our child benefit or do we need to complete a Self Assessment (SA)?
2. If not, assuming all our job circumstances stay the same, but our savings keep increasing, what amount would we be allowed to save up to before we would be required to inform child benefit or complete SA?
3. Can you please help explain how you calculate this information?

Thank you very much for your help.

Buildingbee

[Deleted User]

First and foremost - have your wife apply for marriage allowance and transfer 1257 of her personal allowances to you! And then go back as many of the last four tax years as is appropriate 

https://www.gov.uk/apply-marriage-allowance

p00hsticks

Welcome to the forum.

I'll leave others to answer the questions you actually asked (I think i know the answers but I'm not an expert), but one thing to bear in mind - is the Child Benefit in the name of you or your wife ? It needs to be in your wife's name for her to get the associated National Insurance Credits that will help build up her State Pension entitlement (assuming at least one of the children is under 12)

Dazed_and_C0nfused

QUESTIONS
1.  Will the above circumstances affect our child benefit or do we need to complete a Self Assessment (SA)?

2..If not, assuming all our job circumstances stay the same, but our savings keep increasing, what amount would we be allowed to save up to before we would be required to inform child benefit or complete SA?

3..Can you please help explain how you calculate this information?

1.  Based on what you've posted there is no need for you to complete a Self Assessment return.

2.  The two criteria that are most likely to be relevant are if one of you received interest of £10,000 or more - you would have to complete a tax return then even if no tax was payable on the interest.  Or if either of you had adjusted net income of £50,100 or more.  Basically that's your total taxable income less certain pension contributions and any Gift Aid payments.

3.  What exactly is it you think you might need to calculate or are concerned about?

buildingbee

Wow! What response, thank you!

purdyoaten2 and p00hsticks - Thanks for that.  I can confirm child benefit is already under her name and yes she has already transferred her PA to me.

Dazed_and_C0nfused - Thanks for the helpful info.

1. If we don't need to complete SA return, what about Child benefit?  Does this amount of income/savings mean we would go into the high-income bracket?

2. We've certainly not received £10k interest, but forgive me, as I'm not sure what you mean by 'adjusted net income' - Do you mean all our salaries, savings, benefits minus the pension/gift aid? 

3. I'm concerned that as our savings build-up, let's say hypothetically to £50k and assuming our salaries stayed the same, would this take us in high-income bracket? Would we need to contact Child Benefit or SA?  Would we owe any tax?

Really appreciate all your help.

[Deleted User]

Number 1 and 3 - No and No! It’s income that counts not capital. You are a long way from having to worry about SA or child benefit clawback.

Based on your answer to Dazed - no concerns on No 2 either as your adjusted income is well below the £50100 or so.

Dazed_and_C0nfused

1.  You/your wife can contribute to receive Child Benefit however much income you have.  But if either persons adjusted net income is £50,100 or more you will have to start paying an extra tax (High Income Child Benefit Charge).

2.  Adjusted net income is explained here, but for most people its basically taxable income less certain pension contributions (you can't deduct net pay or salary sacrifice contributions as your P60 will already reflect a lower taxable pay figure as a result of those contributions)

Child Benefit isn't taxable income and higher rate tax starts at £50,270 for most people (less if resident in Scotland).

https://www.gov.uk/guidance/adjusted-net-income#:~:text=Adjusted net income is total,paid gross (before tax relief)

3.  You sound a long way off higher rate tax.  

buildingbee

Thanks so much guys. I think that I'm getting to grips with some of the terminology, but it might take a bit longer with my rusty mind, lol.

Yeah it's a number of things that are throwing me in confusion:

• The adjusted net income.  Here is what I'm doing to calculate A.N.I.....I'm simply adding up:-

Our salaries + savings + any benefits and I'm thinking "Ahh I'm getting very close to the £50,270" bracket and I now need to declare this to child benefits as I'm going to end up in the higher tax bracket".  But from what I understand you are saying is that savings in a bank account are not adjusted net income and can be totally ignored, am I right?

• How tax is calculated on savings:-

From the government's website it states that anyone earning over £17570 is not eligible for the £5000 savings interest allowance and can only get £1000 interest free.  Well my interest is going to be approx. £1200, so again I'm thinking "Oh I'm going to earn £1200, so I'm going to end up going over the interest threshold, so I will need to pay tax on the extra £200".

Dazed_and_C0nfused

I think you've got a basic misapprehension.

You don't pay tax on savings.

You pay tax (if necessary) on the interest you get from savings.

So if you have £30,000 in a bank account  and receive £1,000 in interest then your taxable income that HMRC are interested in is £1,000.  Not £30,000 or £31,000.  Just the £1,000 paid in interest by the bank.

If you earn £23k then yes, on interest of £1,200 you would pay tax as follows,

£1,000 x 0% = £0.00
£200 x 20% = £40.00

Total tax payable = £40.00

buildingbee

Dazed_and_C0nfused said:

I think you've got a basic misapprehension.

You don't pay tax on savings.

You pay tax (if necessary) on the interest you get from savings.

So if you have £30,000 in a bank account  and receive £1,000 in interest then your taxable income that HMRC are interested in is £1,000.  Not £30,000 or £31,000.  Just the £1,000 paid in interest by the bank.

If you earn £23k then yes, on interest of £1,200 you would pay tax as follows,

£1,000 x 0% = £0.00
£200 x 20% = £40.00

Total tax payable = £40.00

Ahh right I see. Now that makes a lot of sense to me.

So I ignore the actual savings amount (even if it went to £50-£60k), but just look at the interest I've earned.

So lets say I earned hypothetically  £3000 interest in a year and our combined salary was £30k (basic rate tax payer), we would calculate it as:-

£1000 x 0% = 0.00
£2000 x 20% = £400

Total tax payable = £400.00

Have I got this right?

Dazed_and_C0nfused

buildingbee said:

Dazed_and_C0nfused said:

I think you've got a basic misapprehension.

You don't pay tax on savings.

You pay tax (if necessary) on the interest you get from savings.

So if you have £30,000 in a bank account  and receive £1,000 in interest then your taxable income that HMRC are interested in is £1,000.  Not £30,000 or £31,000.  Just the £1,000 paid in interest by the bank.

If you earn £23k then yes, on interest of £1,200 you would pay tax as follows,

£1,000 x 0% = £0.00
£200 x 20% = £40.00

Total tax payable = £40.00

Ahh right I see. Now that makes a lot of sense to me.

So I ignore the actual savings amount (even if it went to £50-£60k), but just look at the interest I've earned.

So lets say I earned hypothetically  £3000 interest in a year and our combined salary was £30k (basic rate tax payer), we would calculate it as:-

£1000 x 0% = 0.00
£2000 x 20% = £400

Total tax payable = £400.00

Have I got this right?

Everything except the bit in bold.  You are each taxed independently so your combined salary doesn't matter.

In fact "salary" doesn't matter at all, it's taxable pay that counts and this can often be less than salary due to pension contributions.

If your wife earns in taxable pay £6,000 and has applied for Marriage Allowance she can have interest of £11,310 before she would actually have to pay any tax on it.