Personal savings allowance and staying out of higher rate tax band

pecunianonolet

Ocelot said:

I think it depends on how you are paying into your pension. If it is via salary sacrifice, the higher rate should be automatically applied, but not if you do it another way.

I know, salary sacrifice is what I had at my previous company (they offered a choice of method) and it was far easier, even if I sacrificed the 1% on the lowest band in Scotland as it is taken to the exact rates vs the pension provider claiming 20% relief from HMRC so a very marginal gain of that 1% extra relief.

Current employer doesn't offer a sacrifice option, even if it would be cheaper for them due to the lower NI payments they'd need to make and I am left with the extra work too. 

Salary sacrifice is definitely the better solution imho.

RobfromCornwall

Sorry to jump on this thread, but would someone be willing to double check my thinking please:

Taxable pay (from P60)	£49,530
Interest income	£13,690
Employee pension contributions	£5,500
SIPP contributions. (gross)	£19,500

I think I'm right that it's Pay + Interest - EmpPen - SIPP = £38,220. 

I think this still puts me just into the Higher Rate band, and I need to make another SIPP contribution of £520 to stay in the Basic Rate band and only be taxed at 20% above £1000 of savings interest rather than at 40% above £500.

Dazed_and_C0nfused

RobfromCornwall said:

Sorry to jump on this thread, but would someone be willing to double check my thinking please:

Taxable pay (from P60)	£49,530
Interest income	£13,690
Employee pension contributions	£5,500
SIPP contributions. (gross)	£19,500

I think I'm right that it's Pay + Interest - EmpPen - SIPP = £38,220. 

I think this still puts me just into the Higher Rate band, and I need to make another SIPP contribution of £520 to stay in the Basic Rate band and only be taxed at 20% above £1000 of savings interest rather than at 40% above £500.

What method was used for the employee pension contributions?

Was it relief at source (same as the SIPP)?

And if so was the £5,500 net or gross?

Although you don't appear or be particularly close to the HR threshold on those figures.

RobfromCornwall

Dazed_and_C0nfused said:

RobfromCornwall said:

Sorry to jump on this thread, but would someone be willing to double check my thinking please:

Taxable pay (from P60)	£49,530
Interest income	£13,690
Employee pension contributions	£5,500
SIPP contributions. (gross)	£19,500

I think I'm right that it's Pay + Interest - EmpPen - SIPP = £38,220. 

I think this still puts me just into the Higher Rate band, and I need to make another SIPP contribution of £520 to stay in the Basic Rate band and only be taxed at 20% above £1000 of savings interest rather than at 40% above £500.

What method was used for the employee pension contributions?

Was it relief at source (same as the SIPP)?

And if so was the £5,500 net or gross?

Although you don't appear or be particularly close to the HR threshold on those figures.

Thanks for taking a look at this.

My employee pension is a teacher's pension (DB).  The £5500 is from my year to date payslip (presume this is salary sacrifice?).

Would you mind clarifying the figure I need to be under?  I'm not sure if Pay + Interest - EmpPen - SIPP need to be under £37,700 or £52,750.

Sorry this is a stupid question, perhaps I'm worrying unnecessarily and I am no at all near the HR threshold.

Thanks in advance. 

Dazed_and_C0nfused

RobfromCornwall said:

Dazed_and_C0nfused said:

RobfromCornwall said:

Sorry to jump on this thread, but would someone be willing to double check my thinking please:

Taxable pay (from P60)	£49,530
Interest income	£13,690
Employee pension contributions	£5,500
SIPP contributions. (gross)	£19,500

I think I'm right that it's Pay + Interest - EmpPen - SIPP = £38,220. 

I think this still puts me just into the Higher Rate band, and I need to make another SIPP contribution of £520 to stay in the Basic Rate band and only be taxed at 20% above £1000 of savings interest rather than at 40% above £500.

What method was used for the employee pension contributions?

Was it relief at source (same as the SIPP)?

And if so was the £5,500 net or gross?

Although you don't appear or be particularly close to the HR threshold on those figures.

Thanks for taking a look at this.

My employee pension is a teacher's pension (DB).  The £5500 is from my year to date payslip (presume this is salary sacrifice?).

Would you mind clarifying the figure I need to be under?  I'm not sure if Pay + Interest - EmpPen - SIPP need to be under £37,700 or £52,750.

Sorry this is a stupid question, perhaps I'm worrying unnecessarily and I am no at all near the HR threshold.

Thanks in advance. 

You can never deduct salary sacrifice contributions as they are employer contributions.

But I have never heard of TPS using salary sacrifice, as far as I'm aware they use the net pay method.  Which also cannot be deducted as they are already factored into your P60 pay amount. 

And unless Scottish resident the higher rate threshold is £50,270.

qbadger

Just want to double check something with someone - do you also find HMRC sometimes plays a bit fast and loose with terminology on their own website? 

In the Tax Rates and Bands table of their guidance, they refer to "Income after allowances". My understanding is that what they actually mean here is, taxable income less Personal Allowance and less reliefs (expenses). Tax-free allowances such as PSA, dividend allowance, trading and property allowances are not to be included in this calculation to determine whether we are basic/higher/additional rate payer.
https://www.gov.uk/government/publications/rates-and-allowances-income-tax/income-tax-rates-and-allowances-current-and-past#tax-rates-and-bands
Now I suppose HMRC would say we should be clever enough to know from the context that "after allowances" here is referring to just Personal Allowance, adjusted by Married Couple’s Allowance and Blind Person’s Allowance. But even 'allowing' for that, I don't think they are being precise enough as it ignores the tax reliefs.

eskbanker

qbadger said:

Just want to double check something with someone - do you also find HMRC sometimes plays a bit fast and loose with terminology on their own website? 

In the Tax Rates and Bands table of their guidance, they refer to "Income after allowances". My understanding is that what they actually mean here is, taxable income less Personal Allowance and less reliefs (expenses). Tax-free allowances such as PSA, dividend allowance, trading and property allowances are not to be included in this calculation to determine whether we are basic/higher/additional rate payer.
https://www.gov.uk/government/publications/rates-and-allowances-income-tax/income-tax-rates-and-allowances-current-and-past#tax-rates-and-bands
Now I suppose HMRC would say we should be clever enough to know from the context that "after allowances" here is referring to just Personal Allowance, adjusted by Married Couple’s Allowance and Blind Person’s Allowance. But even 'allowing' for that, I don't think they are being precise enough as it ignores the tax reliefs.

It's often commented on here that personal savings and dividend "allowances" aren't "tax-free allowances" as such at all, but are nil-rate bands applicable to taxable income, so yes, they're undoubtedly guilty of imprecise terminology.

spider42

qbadger said:

My understanding is that what they actually mean here is, taxable income less Personal Allowance and less reliefs (expenses). Tax-free allowances such as PSA, dividend allowance, trading and property allowances are not to be included in this calculation to determine whether we are basic/higher/additional rate payer.

Not quite. PSA and dividend allowance are nil rate of tax, and don't reduce taxable income. But the trading and property allowances don't work in the same way and do reduce taxable income.

Dazed_and_C0nfused

qbadger said:

Just want to double check something with someone - do you also find HMRC sometimes plays a bit fast and loose with terminology on their own website? 

In the Tax Rates and Bands table of their guidance, they refer to "Income after allowances". My understanding is that what they actually mean here is, taxable income less Personal Allowance and less reliefs (expenses). Tax-free allowances such as PSA, dividend allowance, trading and property allowances are not to be included in this calculation to determine whether we are basic/higher/additional rate payer.
https://www.gov.uk/government/publications/rates-and-allowances-income-tax/income-tax-rates-and-allowances-current-and-past#tax-rates-and-bands
Now I suppose HMRC would say we should be clever enough to know from the context that "after allowances" here is referring to just Personal Allowance, adjusted by Married Couple’s Allowance and Blind Person’s Allowance. But even 'allowing' for that, I don't think they are being precise enough as it ignores the tax reliefs.

Married Couple's Allowance (or Marriage Allowance for the recipient) is not an allowance in the normal sense.

They provide a tax credit which is offset against someone's tax liability.

qbadger

Thanks everyone for the useful information. I'll leave my original post unedited so that others may learn from my mistakes.

It seems then when coming across the term "allowance" on HMRC's website, the safest thing is to do is to treat it with suspicion... sometimes it means a nil rate tax band (PSA, dividend allowance), sometimes it is a deductible relief (trading allowance, property allowance), and other times it means a tax credit/reduction (marriage allowance). Of course, sometimes it actually really is an allowance (personal allowance, blind person's allowance)!

I do however have some sympathy for them as the source legislation looks complicated, so it's probably not easy to simplify and translate that into layman's terms.