Personal Savings Allowance

Are pension contributions deducterd from total income before determining the level of personal savings allowance? Due to pension contributions I do not pay higher rate tax but have only been given £500 PSA.

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  • kaMelo
    kaMelo Posts: 2,287
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    edited 11 November 2023 at 4:53PM
    What if you add together all of your income including savings interest, dividends etc (excluding ISA's), would that take your income into the higher rate tax bracket?
  • DavidAC said:
    Are pension contributions deducterd from total income before determining the level of personal savings allowance? Due to pension contributions I do not pay higher rate tax but have only been given £500 PSA.
    Most pension contributions don't reduce taxable income.

    But they do increase your basic rate band which can have a similar impact overall.

    You really need to give details of the calculation to know if it's correct or not.  And is it a P800, PA302 or SA302?
  • DavidAC
    DavidAC Posts: 286
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    It is for  2022/2023 tax year. I had a tax code notice with tax free amount increased for pension contributios because I pay tax at the higher rate and reduced for untaxed savings. The savings notes says it takes account of PSA but does not say if it's £500 or £1000.

    I received a tax rebate letter today, only a small amount. It says my PSA is £500. My income is more than the higher rate threshold,  but my pension contributions brings it well below.

     Is my PSA correct at £500 or should it be £1000?

  • ColdIron
    ColdIron Posts: 8,674
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    edited 11 November 2023 at 7:48PM
    Assuming you don't use salary sacrifice your pension contributions don't reduce your taxable income. What they do do is increase your basic rate band thereby raising the level where you pay higher rate tax
    For instance I contribute £3,600 to my pension and they increase my basic rate tax band from £37,700 (£50,270 - £12,570) to £41,300 so you may pay no tax at 40%
    From my self assessment calculation:

  • DavidAC
    DavidAC Posts: 286
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    I don't pay tax at 40% due to pension contributions. If the PSA is based on taxable income I guess it is only £500 then
  • DavidAC said:
    I don't pay tax at 40% due to pension contributions. If the PSA is based on taxable income I guess it is only £500 then
    You have to look at the calculation ignoring the savings nil rate band (aka Personal Savings Allowance).

    That determines if the savings nil rate band is £0, £500 or £1,000.

    It's quite possible to be deemed a higher rate payer for the purpose of establishing the mount of savings nil rate band due but then not actually pay any higher rate tax.

    What was the split of income between,
    non savings non dividend income
    Interest
    Dividends

    And how much was your basic rate band increased by for RAS contributions or Gift aid?

    Any other factors like professional subscriptions or expenses?
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