How much tax do I need to pay

sultan123

Albermarle said:

frugalmacdugal said:

Hi,

if earning £95k a year, does £9.99 a month really make a big difference?

Exactly what I was thinking. Hopefully the OP is not concentrating too much on minor issues like this and is making sure their pension is nice and full up etc 

my pension is in place but I have had a savings account with a poor interest rate so want to invest it at a better interest rate but if I am going to lose lots of tax on it then no point. 

However, seems like I am safe for £500 anyway?

Dazed_and_C0nfused

sultan123 said:

Eco_Miser said:

sultan123 said:

Dazed_and_C0nfused said:

sultan123 said:

Dazed_and_C0nfused said:

Nothing as the first £500 is taxed at 0%.

But if your adjusted net income eventually falls in the £100-£125k range for tapered Personal Allowance you will ultimately pay 20%.

The interest will be taxed at 0% but you would lose £40 of your Personal Allowance (from interest of £80).

Meaning £40 more of your earnings would be taxed at 40% (£40 x 40% = £16)

Might be a silly question so sorry to ask but would I be left with £40-16 = £24 take home?

Also why would my net income fall to 100k? And where is 20% coming from

You would be left with £24 if the interest meant you had a reduced Personal Allowance.

I didn't mean your adjusted net income (ANI) would reduce (fall) but this will happen when it's in the range from £100-£125k.

Let's say your ANI is £100,000.  This means you get a full Personal Allowance of £12,570 and pay tax on £87,430.

But if you have (taxable) interest of £80 your adjusted net income is £100,080.  And this means you are subject to the tapered Personal Allowance.  For every £2 above £100,000 you lose £1 of your Personal Allowance.

So ANI of £100,080 = Personal Allowance of £12,530 which means an extra £40 of your earnings are taxed at 40%.

£40 x 40% = £16.

£16 is 20% of £80.  

The £80 interest is taxed at 0% but your overall tax liability has increased by £16.

None of which will happen until your adjusted net income (which includes any taxable interest) exceeds £100k.  But you are already quite close to that amount.

thank you but what if my overall income does not fall within 100k

let us say I make 95k + £80 interest. My overall income would be £95080. As £500 savings free, guessing I would then pay nothing on the £80?

Yes, as was stated in the first two replies.
Dazed_and_C0nfused was warning you that with just a 5k rise, the calculation gets more complicated - still zero tax on the interest, but less Personal Allowance, so more tax.

less personal allowance if I hit 100k though, not at 95k right?

Correct.  

sultan123

Dazed_and_C0nfused said:

sultan123 said:

Eco_Miser said:

sultan123 said:

Dazed_and_C0nfused said:

sultan123 said:

Dazed_and_C0nfused said:

Nothing as the first £500 is taxed at 0%.

But if your adjusted net income eventually falls in the £100-£125k range for tapered Personal Allowance you will ultimately pay 20%.

The interest will be taxed at 0% but you would lose £40 of your Personal Allowance (from interest of £80).

Meaning £40 more of your earnings would be taxed at 40% (£40 x 40% = £16)

Might be a silly question so sorry to ask but would I be left with £40-16 = £24 take home?

Also why would my net income fall to 100k? And where is 20% coming from

You would be left with £24 if the interest meant you had a reduced Personal Allowance.

I didn't mean your adjusted net income (ANI) would reduce (fall) but this will happen when it's in the range from £100-£125k.

Let's say your ANI is £100,000.  This means you get a full Personal Allowance of £12,570 and pay tax on £87,430.

But if you have (taxable) interest of £80 your adjusted net income is £100,080.  And this means you are subject to the tapered Personal Allowance.  For every £2 above £100,000 you lose £1 of your Personal Allowance.

So ANI of £100,080 = Personal Allowance of £12,530 which means an extra £40 of your earnings are taxed at 40%.

£40 x 40% = £16.

£16 is 20% of £80.  

The £80 interest is taxed at 0% but your overall tax liability has increased by £16.

None of which will happen until your adjusted net income (which includes any taxable interest) exceeds £100k.  But you are already quite close to that amount.

thank you but what if my overall income does not fall within 100k

let us say I make 95k + £80 interest. My overall income would be £95080. As £500 savings free, guessing I would then pay nothing on the £80?

Yes, as was stated in the first two replies.
Dazed_and_C0nfused was warning you that with just a 5k rise, the calculation gets more complicated - still zero tax on the interest, but less Personal Allowance, so more tax.

less personal allowance if I hit 100k though, not at 95k right?

Correct.  

Thanks. Would the interest earnt count towards total income for tax return?

Dazed_and_C0nfused

sultan123 said:

Dazed_and_C0nfused said:

sultan123 said:

Eco_Miser said:

sultan123 said:

Dazed_and_C0nfused said:

sultan123 said:

Dazed_and_C0nfused said:

Nothing as the first £500 is taxed at 0%.

But if your adjusted net income eventually falls in the £100-£125k range for tapered Personal Allowance you will ultimately pay 20%.

The interest will be taxed at 0% but you would lose £40 of your Personal Allowance (from interest of £80).

Meaning £40 more of your earnings would be taxed at 40% (£40 x 40% = £16)

Might be a silly question so sorry to ask but would I be left with £40-16 = £24 take home?

Also why would my net income fall to 100k? And where is 20% coming from

You would be left with £24 if the interest meant you had a reduced Personal Allowance.

I didn't mean your adjusted net income (ANI) would reduce (fall) but this will happen when it's in the range from £100-£125k.

Let's say your ANI is £100,000.  This means you get a full Personal Allowance of £12,570 and pay tax on £87,430.

But if you have (taxable) interest of £80 your adjusted net income is £100,080.  And this means you are subject to the tapered Personal Allowance.  For every £2 above £100,000 you lose £1 of your Personal Allowance.

So ANI of £100,080 = Personal Allowance of £12,530 which means an extra £40 of your earnings are taxed at 40%.

£40 x 40% = £16.

£16 is 20% of £80.  

The £80 interest is taxed at 0% but your overall tax liability has increased by £16.

None of which will happen until your adjusted net income (which includes any taxable interest) exceeds £100k.  But you are already quite close to that amount.

thank you but what if my overall income does not fall within 100k

let us say I make 95k + £80 interest. My overall income would be £95080. As £500 savings free, guessing I would then pay nothing on the £80?

Yes, as was stated in the first two replies.
Dazed_and_C0nfused was warning you that with just a 5k rise, the calculation gets more complicated - still zero tax on the interest, but less Personal Allowance, so more tax.

less personal allowance if I hit 100k though, not at 95k right?

Correct.  

Thanks. Would the interest earnt count towards total income for tax return?

Yes it would.

If it was an ISA then it doesn't go on the return.

sultan123

Dazed_and_C0nfused said:

sultan123 said:

Dazed_and_C0nfused said:

sultan123 said:

Eco_Miser said:

sultan123 said:

Dazed_and_C0nfused said:

sultan123 said:

Dazed_and_C0nfused said:

Nothing as the first £500 is taxed at 0%.

But if your adjusted net income eventually falls in the £100-£125k range for tapered Personal Allowance you will ultimately pay 20%.

The interest will be taxed at 0% but you would lose £40 of your Personal Allowance (from interest of £80).

Meaning £40 more of your earnings would be taxed at 40% (£40 x 40% = £16)

Might be a silly question so sorry to ask but would I be left with £40-16 = £24 take home?

Also why would my net income fall to 100k? And where is 20% coming from

You would be left with £24 if the interest meant you had a reduced Personal Allowance.

I didn't mean your adjusted net income (ANI) would reduce (fall) but this will happen when it's in the range from £100-£125k.

Let's say your ANI is £100,000.  This means you get a full Personal Allowance of £12,570 and pay tax on £87,430.

But if you have (taxable) interest of £80 your adjusted net income is £100,080.  And this means you are subject to the tapered Personal Allowance.  For every £2 above £100,000 you lose £1 of your Personal Allowance.

So ANI of £100,080 = Personal Allowance of £12,530 which means an extra £40 of your earnings are taxed at 40%.

£40 x 40% = £16.

£16 is 20% of £80.  

The £80 interest is taxed at 0% but your overall tax liability has increased by £16.

None of which will happen until your adjusted net income (which includes any taxable interest) exceeds £100k.  But you are already quite close to that amount.

thank you but what if my overall income does not fall within 100k

let us say I make 95k + £80 interest. My overall income would be £95080. As £500 savings free, guessing I would then pay nothing on the £80?

Yes, as was stated in the first two replies.
Dazed_and_C0nfused was warning you that with just a 5k rise, the calculation gets more complicated - still zero tax on the interest, but less Personal Allowance, so more tax.

less personal allowance if I hit 100k though, not at 95k right?

Correct.  

Thanks. Would the interest earnt count towards total income for tax return?

Yes it would.

If it was an ISA then it doesn't go on the return.

Cool so £500 interest would still not push me into 100k so no issue really?

Dazed_and_C0nfused

sultan123 said:

Dazed_and_C0nfused said:

sultan123 said:

Dazed_and_C0nfused said:

sultan123 said:

Eco_Miser said:

sultan123 said:

Dazed_and_C0nfused said:

sultan123 said:

Dazed_and_C0nfused said:

Nothing as the first £500 is taxed at 0%.

But if your adjusted net income eventually falls in the £100-£125k range for tapered Personal Allowance you will ultimately pay 20%.

The interest will be taxed at 0% but you would lose £40 of your Personal Allowance (from interest of £80).

Meaning £40 more of your earnings would be taxed at 40% (£40 x 40% = £16)

Might be a silly question so sorry to ask but would I be left with £40-16 = £24 take home?

Also why would my net income fall to 100k? And where is 20% coming from

You would be left with £24 if the interest meant you had a reduced Personal Allowance.

I didn't mean your adjusted net income (ANI) would reduce (fall) but this will happen when it's in the range from £100-£125k.

Let's say your ANI is £100,000.  This means you get a full Personal Allowance of £12,570 and pay tax on £87,430.

But if you have (taxable) interest of £80 your adjusted net income is £100,080.  And this means you are subject to the tapered Personal Allowance.  For every £2 above £100,000 you lose £1 of your Personal Allowance.

So ANI of £100,080 = Personal Allowance of £12,530 which means an extra £40 of your earnings are taxed at 40%.

£40 x 40% = £16.

£16 is 20% of £80.  

The £80 interest is taxed at 0% but your overall tax liability has increased by £16.

None of which will happen until your adjusted net income (which includes any taxable interest) exceeds £100k.  But you are already quite close to that amount.

thank you but what if my overall income does not fall within 100k

let us say I make 95k + £80 interest. My overall income would be £95080. As £500 savings free, guessing I would then pay nothing on the £80?

Yes, as was stated in the first two replies.
Dazed_and_C0nfused was warning you that with just a 5k rise, the calculation gets more complicated - still zero tax on the interest, but less Personal Allowance, so more tax.

less personal allowance if I hit 100k though, not at 95k right?

Correct.  

Thanks. Would the interest earnt count towards total income for tax return?

Yes it would.

If it was an ISA then it doesn't go on the return.

Cool so £500 interest would still not push me into 100k so no issue really?

Not until your next pay rise 😊

sultan123

If earnings were above 100k would investment into a SIPP account reduce the income level. E.g. invest 6k into SIPP and your actual income is 94k?

Dazed_and_C0nfused

No.  But it has other advantages.

Your taxable income would remain £100k but your basic rate band would be increased by £6,000* meaning more tax paid at 20% and less at 40%.

And your Personal Allowance is based on adjusted net income not taxable income and that type of pension contribution (relief at source) do reduce your adjusted net income.

So say your adjusted net income was going to be £106,000. That would mean your Personal Allowance would be reduced by £3,000 from £12,570 to £9,570.

But if you contributed £6,000 to a relief at source pension such as a SIPP then your adjusted net income would be £100,00 and you would retain your full Personal Allowance.

Pension contributions are very tax efficient is this type of situation.

You hand over £4,800 and the pension company adds £1,200 in basic rate tax relief giving you a pension fund of £6,000 and

You get to retain your full Personal Allowance and

Your basic rate band is increased by £6,000.

*All of the above assumes a gross contribution of £6,000, not a net contribution of £6,000

sultan123

Dazed_and_C0nfused said:

No.  But it has other advantages.

Your taxable income would remain £100k but your basic rate band would be increased by £6,000* meaning more tax paid at 20% and less at 40%.

And your Personal Allowance is based on adjusted net income not taxable income and that type of pension contribution (relief at source) do reduce your adjusted net income.

So say your adjusted net income was going to be £106,000. That would mean your Personal Allowance would be reduced by £3,000 from £12,570 to £9,570.

But if you contributed £6,000 to a relief at source pension such as a SIPP then your adjusted net income would be £100,00 and you would retain your full Personal Allowance.

Pension contributions are very tax efficient is this type of situation.

You hand over £4,800 and the pension company adds £1,200 in basic rate tax relief giving you a pension fund of £6,000 and

You get to retain your full Personal Allowance and

Your basic rate band is increased by £6,000.

*All of the above assumes a gross contribution of £6,000, not a net contribution of £6,000

Thank you that is so helpful. What do you mean by gross and net though. I would take 6k from my income post tax and NI and put that amount into a SIPP

sultan123

Also why would basic rate band be increased due to SIPP contribution