PAYING TAX ON INTEREST FROM SAVINGS

Yorkie1

Don't forget to add the gross savings interest to your other income, to decide which tax band you will be in. 

Dazed_and_C0nfused

westv said:

May I jump in on this thread.
I know basic rate tax payers get £1,000 of interest tax free and anything above that is taxed at 20%
For higher rate tax payers the rate is 40% on anything over £500.
Until this morning I was happy in the knowledge that sal sac was bringing my total income for 2023/24 to within the 20% tax rate.
However, I received a letter this morning from the FAS (PPF) to advise me of a backdated increase in my pension payments. Good news obviously but I have just realised it might tip me into 40%.
Question is, if I go even £1 into the 40% rate would my savings tax free interest amount cut to £500 or is it graded in some way? From memory my total taxable interest for the year will be around £1,300.

You have to ignore the savings nil rate band (£500 or £1,000 interest taxed at 0%) when determining if you are classed as a higher rate payer or not.

Then once that is know your tax liability is calculated with the relevant rate band of £500 or £1,000, included.

westv

Yorkie1 said:

Don't forget to add the gross savings interest to your other income, to decide which tax band you will be in. 

Yes, I did that. My calcs put me around £500 into the 40% band.

westv

Dazed_and_C0nfused said:

westv said:

May I jump in on this thread.
I know basic rate tax payers get £1,000 of interest tax free and anything above that is taxed at 20%
For higher rate tax payers the rate is 40% on anything over £500.
Until this morning I was happy in the knowledge that sal sac was bringing my total income for 2023/24 to within the 20% tax rate.
However, I received a letter this morning from the FAS (PPF) to advise me of a backdated increase in my pension payments. Good news obviously but I have just realised it might tip me into 40%.
Question is, if I go even £1 into the 40% rate would my savings tax free interest amount cut to £500 or is it graded in some way? From memory my total taxable interest for the year will be around £1,300.

You have to ignore the savings nil rate band (£500 or £1,000 interest taxed at 0%) when determining if you are classed as a higher rate payer or not.

Then once that is know your tax liability is calculated with the relevant rate band of £500 or £1,000, included.

That is what I am doing.

westv

ColdIron said:

It's not graded

https://www.gov.uk/apply-tax-free-interest-on-savings

It depends on your tax band

https://www.gov.uk/government/publications/rates-and-allowances-income-tax/income-tax-rates-and-allowances-current-and-past#tax-rates-and-bands

You might still have a month or two to increase your SS or just make a contribution to it or a SIPP

If I make a one off contribution it would come out of my net salary. Would HMRC then deduct this from my overall income for 2023/24 to take me back into the 20% tax band?

Dazed_and_C0nfused

westv said:

ColdIron said:

It's not graded

https://www.gov.uk/apply-tax-free-interest-on-savings

It depends on your tax band

https://www.gov.uk/government/publications/rates-and-allowances-income-tax/income-tax-rates-and-allowances-current-and-past#tax-rates-and-bands

You might still have a month or two to increase your SS or just make a contribution to it or a SIPP

If I make a one off contribution it would come out of my net salary. Would HMRC then deduct this from my overall income for 2023/24 to take me back into the 20% tax band?

If it's a RAS contribution (to a personal pension or SIPP) then that doesn't reduce your taxable income.

But it does increase your basic rate band which usually has the same impact.

westv

Dazed_and_C0nfused said:

westv said:

ColdIron said:

It's not graded

https://www.gov.uk/apply-tax-free-interest-on-savings

It depends on your tax band

https://www.gov.uk/government/publications/rates-and-allowances-income-tax/income-tax-rates-and-allowances-current-and-past#tax-rates-and-bands

You might still have a month or two to increase your SS or just make a contribution to it or a SIPP

If I make a one off contribution it would come out of my net salary. Would HMRC then deduct this from my overall income for 2023/24 to take me back into the 20% tax band?

If it's a RAS contribution (to a personal pension or SIPP) then that doesn't reduce your taxable income.

But it does increase your basic rate band which usually has the same impact.

I was considering making a one payment to my company DC plan with Aegon. I would have just amended the SS amount but HR still use the old out of date rules (can only make a change in specific circumstances) which just means they don't want the extra admin.
I didn't quite understand the bit about increasing the basic rate tax band. I will reread that bit again.

Dazed_and_C0nfused

westv said:

Dazed_and_C0nfused said:

westv said:

ColdIron said:

It's not graded

https://www.gov.uk/apply-tax-free-interest-on-savings

It depends on your tax band

https://www.gov.uk/government/publications/rates-and-allowances-income-tax/income-tax-rates-and-allowances-current-and-past#tax-rates-and-bands

You might still have a month or two to increase your SS or just make a contribution to it or a SIPP

If I make a one off contribution it would come out of my net salary. Would HMRC then deduct this from my overall income for 2023/24 to take me back into the 20% tax band?

If it's a RAS contribution (to a personal pension or SIPP) then that doesn't reduce your taxable income.

But it does increase your basic rate band which usually has the same impact.

I was considering making a one payment to my company DC plan with Aegon. I would have just amended the SS amount but HR still use the old out of date rules (can only make a change in specific circumstances) which just means they don't want the extra admin.
I didn't quite understand the bit about increasing the basic rate tax band. I will reread that bit again.

Salary sacrifice means you have less income to be taxed in the first place and you never need to mention salary sacrifice contributions to HMRC as they are actually employer contributions.

With RAS contributions you get pension tax relief added to your contribution, for example if you hand over £1,000 it becomes £1,250 in your pension fund.

The gross contribution (£1,250 in this example) increases the amount of your basic rate band meaning more income can be taxed at 20% and less at 40% (if you earn enough).

ColdIron

The HR threshold is £50,270. If you make a £1,000 contribution grossed up to £1,250 they add it to the threshold so it becomes £51,520. Another way of looking at it is that the BR band becomes £38,950 instead of £37,700. Either way it could take you out of HR tax. You could just make a payment or send a cheque to Aegon instead of SS

westv

I paid £1,000 into my Aegon pension back in Feb 24. as an additional one off as per comments here. However, I've just received some info from HMRC regarding the 23/24 tax year. If I'm reading it correctly, they have taken no notice of my additional pension contribution and will be deducting additional tax based on a £500 savings interest level rather than £1,000.