Tax on Dividend & Interest Income

Mikey481

Looking for some clarity on how dividends and savings interest income impacts on overall annual income

I am paying 30% into my employers salary sacrifice scheme to stay below 40% threshold.However something I hadn’t considered was whether income from dividends and savings although within personal allowances allowed by HMRC impacts overall income. At the moment I’m only about £500 under the 40% threshold and would be pushed over if the other two count towards total income. Would definitely contribute more to S/S to avoid thanks.

Dazed_and_C0nfused

I think you've misunderstood how interest is taxed as there are no extra "allowances" for interest (or dividends).

The first thing you need to do is calculate your tax liability ignoring the savings nil rate band (aka Personal Savings Allowance).

This determines if you are a higher rate payer or not.  And you will then know if you will have up to £500 or £1,000 interest taxed at 0%.

Dividends are simpler, the first £2,000 are taxed at 0% (the dividend nil rate).  But this £2,000 can use any unused basic rate band.

Also salary sacrifice means you don't contribute to the pension, you are agreeing to a lower salary in return for additional employer contributions.  That's why no pension tax relief is added to your pension fund.

Dazed_and_C0nfused

This is quite a good guide,

https://www.litrg.org.uk/tax-guides/tax-basics/what-tax-rates-apply-me

Mikey481

Thanks.
So I thought it might be worth posting actual figures to be absolutely sure I understand.
Salary 22/23 £49800
Saving interest approx 22/23 £600
Dividend income approx 22/23 £800
I think this means that i can carry on with my current 30% AVC and still be a basic rate tax payer this financial year ?
 

Dazed_and_C0nfused

Salary isn't a factor for tax purposes.

What do you expect your P60 to show your taxable pay as for the current tax year?

Mikey481

 Will be £49800

Dazed_and_C0nfused

Mikey481 said:

 Will be £49800

From what you've posted then yes you would be classed as a higher rate payer and your income, after the Personal Allowance would be taxed as follows,

Earnings 
£37,230 x 20%

Interest 
£470 x 0% (savings nil rate within basic rate band)
£30 x 0% (savings nil rate within higher rate band)
£100 x 40% (savings higher rate within higher rate band)

Dividends

£800 x 0% (dividend nil rate within higher rate band)

Dazed_and_C0nfused

I think you can ignore my previous posts given this comment from one of your other threads,

I am drawing a DB pension which is approx £24000 a year 

Mikey481

How so regardless of income source my figures are accurate 

Dazed_and_C0nfused

Mikey481 said:

How so regardless of income source my figures are accurate 

All my responses were based on the details in this thread.

Which don't tell the whole story as you clearly have far more taxable income!

Mikey481

Ok thanks for your knowledge