Personal Savings Allowance - is this correct

The_Bookman

Good morning,

I would like to know if the below premise is correct or, if not, to understand why not. Thank you very much in anticipation.

Ms Book receives a small pay rise which takes her annual income to £50,370.
Ms Book must now pay 40% tax on £100.
Ms Book has been receiving £1000 per annum in savings income.
Ms Book's PSA has been cut from £1000 per annum to £500 because she is now a higher rate tax payer.
Ms Book must now pay 40% tax (£200) on £500 of her savings income.
Because she is now £100 over the basic rate tax threshold, she is £200 per annum worse off.
Ms Book would be well advised to reduce her savings interest income to £500 per annum by moving some of her savings to an ISA.

masonic

It's correct, but Ms Book could consider several actions to avoid this, such as paying a bit more into her pension. It is also somewhat dependant on interest rates available on cash ISAs - currently easy access ISA rates are about the same as other savings accounts, but this is not always the case.

Dazed_and_C0nfused

The_Bookman said:

Good morning,

I would like to know if the below premise is correct or, if not, to understand why not. Thank you very much in anticipation.

Ms Book receives a small pay rise which takes her annual income to £50,370.
Ms Book must now pay 40% tax on £100.
Ms Book has been receiving £1000 per annum in savings income.
Ms Book's PSA has been cut from £1000 per annum to £500 because she is now a higher rate tax payer.
Ms Book must now pay 40% tax (£200) on £500 of her savings income.
Because she is now £100 over the basic rate tax threshold, she is £200 per annum worse off.
Ms Book would be well advised to reduce her savings interest income to £500 per annum by moving some of her savings to an ISA.

Depending on what you mean by "small pay rise", she may have already been seen as higher rate for savings nil rate band purposes.

But your basic premise is correct.  If she has interest of exactly £1,000 it would be taxed,

£500 x 0%
£500 x 40%

But as @masonic says, it's easily avoided on those particular figures.