Total Income & Avoid 40% Tax

Its_all_Dinx

Dazed_and_C0nfused said:

Its_all_Dinx said:

Hello everyone,  I am back again  with another question on this part.

I got dividend of £1068  in tax year 2023/24.

Do I take away the £1000 tax free limit first then include this in my taxable income or do I have to show Gross and if I do self assessment then take it away from there?

Or...  is the government system clever enough to work this all out for me?

There is no separate allowance for dividends.

You include all taxable income on your Self Assessment return and this will be taxed as necessary within your Self Assessment calculation.

For 2023-24 the first £1,000 will be taxed at 0% (the dividend nil rate).

Hi, what I meant was if I had an income of

£49,000 in salary

£1013 in interest

£1086 in dividends

This gross puts me into higher tax band.

If I got to use the tax free allowances on my interest and dividends,  then I fall down below £5,0270 limit.

Would HMRC be nice and apply the tax free allowances first and then check my income or would they use gross and tax me at the higher rate?

To throw another spanner in the works,  I also had a 2nd job  99% of my wages went into pension,  the company still paid my taxes at BR rate but  I got 99% paid into my pension plus what they matched at 7.5%

Could I declare that my wage was going into pension,  would have also help bring down my gross?

Dazed_and_C0nfused

Its_all_Dinx said:

Dazed_and_C0nfused said:

Its_all_Dinx said:

Hello everyone,  I am back again  with another question on this part.

I got dividend of £1068  in tax year 2023/24.

Do I take away the £1000 tax free limit first then include this in my taxable income or do I have to show Gross and if I do self assessment then take it away from there?

Or...  is the government system clever enough to work this all out for me?

There is no separate allowance for dividends.

You include all taxable income on your Self Assessment return and this will be taxed as necessary within your Self Assessment calculation.

For 2023-24 the first £1,000 will be taxed at 0% (the dividend nil rate).

Hi, what I meant was if I had an income of

£49,000 in salary

£1013 in interest

£1086 in dividends

This gross puts me into higher tax band.

If I got to use the tax free allowances on my interest and dividends,  then I fall down below £5,0270 limit.

Would HMRC be nice and apply the tax free allowances first and then check my income or would they use gross and tax me at the higher rate?

To throw another spanner in the works,  I also had a 2nd job  99% of my wages went into pension,  the company still paid my taxes at BR rate but  I got 99% paid into my pension plus what they matched at 7.5%

Could I declare that my wage was going into pension,  would have also help bring down my gross?

On that income you wouldn't be liable to pay much higher rate tax.

After deducting the Personal Allowance, £36,430 of your earnings would be taxed at 20%.

Then the first £500 of your interest would be taxed at 0%.

The remaining £513 interest would be taxed at 20%, leaving £257 of your basic rate band unused.

The first £1,000 of your dividend income would be taxed at 0% (using the last £257 of your basic rate band).

And the final £86 of your dividend income would be taxed at 33.75%.  So total higher rate liability is just £29.

Dazed_and_C0nfused

Its_all_Dinx said:

Dazed_and_C0nfused said:

Its_all_Dinx said:

Hello everyone,  I am back again  with another question on this part.

I got dividend of £1068  in tax year 2023/24.

Do I take away the £1000 tax free limit first then include this in my taxable income or do I have to show Gross and if I do self assessment then take it away from there?

Or...  is the government system clever enough to work this all out for me?

There is no separate allowance for dividends.

You include all taxable income on your Self Assessment return and this will be taxed as necessary within your Self Assessment calculation.

For 2023-24 the first £1,000 will be taxed at 0% (the dividend nil rate).

Hi, what I meant was if I had an income of

£49,000 in salary

£1013 in interest

£1086 in dividends

This gross puts me into higher tax band.

If I got to use the tax free allowances on my interest and dividends,  then I fall down below £5,0270 limit.

Would HMRC be nice and apply the tax free allowances first and then check my income or would they use gross and tax me at the higher rate?

To throw another spanner in the works,  I also had a 2nd job  99% of my wages went into pension,  the company still paid my taxes at BR rate but  I got 99% paid into my pension plus what they matched at 7.5%

Could I declare that my wage was going into pension,  would have also help bring down my gross?

That doesn't make sense, I suspect you are conflating two things.

If the money had been paid direct into your pension then you wouldn't have paid tax on it.

Do you mean you earned £X and then you chose to put 99% of it into a pension after receiving your take home pay?

If so then they are likely to be relief at source (RAS) pension contributions and they increase your basic rate band, meaning you can pay more basic rate tax and less at higher rates.

Was this income included in your £49,000?

Its_all_Dinx

Dazed_and_C0nfused said:

Its_all_Dinx said:

Dazed_and_C0nfused said:

Its_all_Dinx said:

Hello everyone,  I am back again  with another question on this part.

I got dividend of £1068  in tax year 2023/24.

Do I take away the £1000 tax free limit first then include this in my taxable income or do I have to show Gross and if I do self assessment then take it away from there?

Or...  is the government system clever enough to work this all out for me?

There is no separate allowance for dividends.

You include all taxable income on your Self Assessment return and this will be taxed as necessary within your Self Assessment calculation.

For 2023-24 the first £1,000 will be taxed at 0% (the dividend nil rate).

Hi, what I meant was if I had an income of

£49,000 in salary

£1013 in interest

£1086 in dividends

This gross puts me into higher tax band.

If I got to use the tax free allowances on my interest and dividends,  then I fall down below £5,0270 limit.

Would HMRC be nice and apply the tax free allowances first and then check my income or would they use gross and tax me at the higher rate?

To throw another spanner in the works,  I also had a 2nd job  99% of my wages went into pension,  the company still paid my taxes at BR rate but  I got 99% paid into my pension plus what they matched at 7.5%

Could I declare that my wage was going into pension,  would have also help bring down my gross?

That doesn't make sense, I suspect you are conflating two things.

If the money had been paid direct into your pension then you wouldn't have paid tax on it.

Do you mean you earned £X and then you chose to put 99% of it into a pension after receiving your take home pay?

If so then they are likely to be relief at source (RAS) pension contributions and they increase your basic rate band, meaning you can pay more basic rate tax and less at higher rates.

Was this income included in your £49,000?

So job one I earned approx  £43,000

2nd job I earned approx £6000  from job one  tax was collected on BR tax code.  Looking at my latest payslip gross is £604.92.

Then PAYE is taken off £121

Pension is taken off at £479.10

The company adds  £45.37

When I check my pension transactions it shows my contributions £598.88

Employer contributions £45.37

Tax is paid also I got 99% of my wage paid into pension.

Edited - below

So I had a read of my pension documents.

As I earn below the payment protection limit my pension is taken from my pay and then paid into pension.

But I am not sure how or who is paying me the £119.77    difference.

Dazed_and_C0nfused

Its_all_Dinx said:

Dazed_and_C0nfused said:

Its_all_Dinx said:

Dazed_and_C0nfused said:

Its_all_Dinx said:

Hello everyone,  I am back again  with another question on this part.

I got dividend of £1068  in tax year 2023/24.

Do I take away the £1000 tax free limit first then include this in my taxable income or do I have to show Gross and if I do self assessment then take it away from there?

Or...  is the government system clever enough to work this all out for me?

There is no separate allowance for dividends.

You include all taxable income on your Self Assessment return and this will be taxed as necessary within your Self Assessment calculation.

For 2023-24 the first £1,000 will be taxed at 0% (the dividend nil rate).

Hi, what I meant was if I had an income of

£49,000 in salary

£1013 in interest

£1086 in dividends

This gross puts me into higher tax band.

If I got to use the tax free allowances on my interest and dividends,  then I fall down below £5,0270 limit.

Would HMRC be nice and apply the tax free allowances first and then check my income or would they use gross and tax me at the higher rate?

To throw another spanner in the works,  I also had a 2nd job  99% of my wages went into pension,  the company still paid my taxes at BR rate but  I got 99% paid into my pension plus what they matched at 7.5%

Could I declare that my wage was going into pension,  would have also help bring down my gross?

That doesn't make sense, I suspect you are conflating two things.

If the money had been paid direct into your pension then you wouldn't have paid tax on it.

Do you mean you earned £X and then you chose to put 99% of it into a pension after receiving your take home pay?

If so then they are likely to be relief at source (RAS) pension contributions and they increase your basic rate band, meaning you can pay more basic rate tax and less at higher rates.

Was this income included in your £49,000?

So job one I earned approx  £43,000

2nd job I earned approx £6000  from job one  tax was collected on BR tax code.  Looking at my latest payslip gross is £604.92.

Then PAYE is taken off £121

Pension is taken off at £479.10

The company adds  £45.37

When I check my pension transactions it shows my contributions £598.88

Employer contributions £45.37

Tax is paid also I got 99% of my wage paid into pension.

They are two completely separate things.

1.  You have earned £604.92 and paid basic rate tax on that. 

2.  Separately you have made a gross RAS pension contribution of £598 (£479 paid by you and £119 in basic rate tax relief).

RAS pension contributions don't reduce your income for tax purposes so the fact is you have an additional £604.92 in taxable income.

But RAS contributions do increase your basic rate band so say you contributed £7,000 gross in 2023-24 then your basic rate band would be increased from £37,700 to £44,700 meaning that you would not be liable to higher rate tax.

So using the original figures your tax position would be like this.

After deducting the Personal Allowance, £36,430 of your earnings would be taxed at 20%.

Then the first £1,000 of your interest would be taxed at 0%.  The remaining £13 interest would be taxed at 20%.

The first £1,000 of your dividend income would be taxed at 0%.  And the final £86 of your dividend income would be taxed at 8.75%.

So the RAS pension contributions would save you about £120 in tax.

You need to tell HMRC about the RAS contributions to get the tax saving.  But you don't need to say anything about the second job as that is correctly being taxed at 20%.

Its_all_Dinx

Dazed_and_C0nfused said:

Its_all_Dinx said:

Dazed_and_C0nfused said:

Its_all_Dinx said:

Dazed_and_C0nfused said:

Its_all_Dinx said:

Hello everyone,  I am back again  with another question on this part.

I got dividend of £1068  in tax year 2023/24.

Do I take away the £1000 tax free limit first then include this in my taxable income or do I have to show Gross and if I do self assessment then take it away from there?

Or...  is the government system clever enough to work this all out for me?

There is no separate allowance for dividends.

You include all taxable income on your Self Assessment return and this will be taxed as necessary within your Self Assessment calculation.

For 2023-24 the first £1,000 will be taxed at 0% (the dividend nil rate).

Hi, what I meant was if I had an income of

£49,000 in salary

£1013 in interest

£1086 in dividends

This gross puts me into higher tax band.

If I got to use the tax free allowances on my interest and dividends,  then I fall down below £5,0270 limit.

Would HMRC be nice and apply the tax free allowances first and then check my income or would they use gross and tax me at the higher rate?

To throw another spanner in the works,  I also had a 2nd job  99% of my wages went into pension,  the company still paid my taxes at BR rate but  I got 99% paid into my pension plus what they matched at 7.5%

Could I declare that my wage was going into pension,  would have also help bring down my gross?

That doesn't make sense, I suspect you are conflating two things.

If the money had been paid direct into your pension then you wouldn't have paid tax on it.

Do you mean you earned £X and then you chose to put 99% of it into a pension after receiving your take home pay?

If so then they are likely to be relief at source (RAS) pension contributions and they increase your basic rate band, meaning you can pay more basic rate tax and less at higher rates.

Was this income included in your £49,000?

So job one I earned approx  £43,000

2nd job I earned approx £6000  from job one  tax was collected on BR tax code.  Looking at my latest payslip gross is £604.92.

Then PAYE is taken off £121

Pension is taken off at £479.10

The company adds  £45.37

When I check my pension transactions it shows my contributions £598.88

Employer contributions £45.37

Tax is paid also I got 99% of my wage paid into pension.

They are two completely separate things.

1.  You have earned £604.92 and paid basic rate tax on that. 

2.  Separately you have made a gross RAS pension contribution of £598 (£479 paid by you and £119 in basic rate tax relief).

RAS pension contributions don't reduce your income for tax purposes so the fact is you have an additional £604.92 in taxable income.

But RAS contributions do increase your basic rate band so say you contributed £7,000 gross in 2023-24 then your basic rate band would be increased from £37,700 to £44,700 meaning that you would not be liable to higher rate tax.

So using the original figures your tax position would be like this.

After deducting the Personal Allowance, £36,430 of your earnings would be taxed at 20%.

Then the first £1,000 of your interest would be taxed at 0%.  The remaining £13 interest would be taxed at 20%.

The first £1,000 of your dividend income would be taxed at 0%.  And the final £86 of your dividend income would be taxed at 8.75%.

So the RAS pension contributions would save you about £120 in tax.

You need to tell HMRC about the RAS contributions to get the tax saving.  But you don't need to say anything about the second job as that is correctly being taxed at 20%.

You have just saved me from soo much stress and put a big smile on my face,  I don't know who to share the happiness with.

You have saved me money from lots of different places.

I thought I would have to pay tax on dividend at the higher rate,

Re pay some of the child benefit,

Give up half of my 1000 personal allowance in interest.

Most importantly I do not have to pay 40% tax.

Thank you so much

WindfallWendy

Hi everyone,

I'm just trying to understand all the moving parts to this myself, so apologies if my questions are really basic.

My salary is £48,955. But given I contribute to a workplace pension, my taxable income is less than this, right? 
I've had rental income over 24/25 of £4,500

I won't get any more rental income as I'm selling the house, but as my salary goes up (new job with a new salary scale will see my salary go up to £60k over 4-5 years), I figure I should be making additional payments into my  workplace pension to ensure my TAXABLE income stays below the 40% threshold. 

Right? I think for a long time (until I had to do a tax return) I thought it was my salary that triggered the 40% rate, but now I know what I know, I was wrong. Wasn't I? 

Therefore, my husband who is on £56,495 probably isn't paying 40% either? But is likely teetering. I keep telling him to set up overpayments, but he hasn't had to do a tax return so is blissfully drifting along. I think he actually likes to think he IS a 40% tax payer, like it's some sort of status symbol! 

Last year I made an £8k lumpsum payment into my pension which saw HMRC give me £2k back as it reduced my taxable income to £32k, which was nice! So I think I might do the same again.

Thoughts?

Dazed_and_C0nfused

My salary is £48,955. But given I contribute to a workplace pension, my taxable income is less than this, right? 

No, not necessarily.  It all depends on the method used to make the pension contributions.

Relief at source (25% is added to your contribution within the pension)
Net pay (deducted on your payslip before tax is calculated)
Salary sacrifice (you agree a salary reduction and in return your employer contributes more to your pension)

You need to know that before you can understand the bigger picture.