Optimising savings interest, dividends and CGT allowance

kimwp

I'm trying to work out how to best use the non-ISA allowances, is my understanding of the tax allowances correct please?

My understanding is that savings interest, then dividends are added to pay after pension and charitable contributions to calculate taxable income. (No kids, no company car or any other benefits like that.) If that total exceeds the higher rate threshold, then the Personal Savings Allowance (PSA), savings, where tax is 0%, is reduced to £500. Otherwise (if above the personal allowance and below the additional rate threshold):
- The first £1000 of savings interest is taxed at 0% (PSA), anything above this is taxed at the income tax rate applicable to where each penny sits in the taxable income calculation ("marginal rate") currently 20%/40% below/above threshold.
- The first £500 of dividends is taxed at 0%, anything above this is taxed at the dividends tax rate applicable to where each penny sits in the taxable income calculation ("marginal rate") currently 8.75%/33.75% below/above threshold
- For shares related capital gain, the first £3000 capital gains is tax free, anything above this is added to your taxable income and subsequently taxed at the capital gains tax rate applicable to where each penny sits relative to the higher rate threshold, currently18%/24% (28% on carried interest, not sure what this is)

Funds and ETFs seem to be taxed a bit differently (something to do with “UK reporting fund status" of an ETF?

I'm thinking of buying into the Invesco FTSE All-World UCITS ETF Acc, but I am not sure if this is a fund or an ETF, as both words are in the literature, how can I tell?

Dazed_and_C0nfused

My understanding is that savings interest, then dividends are added to pay after pension and charitable contributions to calculate taxable income. 

Where have you got that idea from?  You can allocate the Personal Allowance in which ever way gives you the lowest tax liability.

There are no more "allowances" once the Personal Allowance has been allocated the remaining income is taxed in a strict order,

Non savings non dividend income 
Then
Savings income (some could be taxed at 0%)
Finally 
Dividend income (the first £500 is taxed at 0%)

Do you mean relief at source pension contribution and Gift Aid donations?  If not can you explain exactly what you do mean as anything else would be quite unusual (pension contribution and charity wise).

kimwp

Dazed_and_C0nfused said:

My understanding is that savings interest, then dividends are added to pay after pension and charitable contributions to calculate taxable income. 

Where have you got that idea from?  You can allocate the Personal Allowance in which ever way gives you the lowest tax liability.

There are no more "allowances" once the Personal Allowance has been allocated the remaining income is taxed in a strict order,

Non savings non dividend income 
Then
Savings income (some could be taxed at 0%)
Finally 
Dividend income (the first £500 is taxed at 0%)

Do you mean relief at source pension contribution and Gift Aid donations?  If not can you explain exactly what you do mean as anything else would be quite unusual (pension contribution and charity wise).

I don't understand your question - I haven't mentioned Personal Allowance.

Re pension and charitable donations, I meant that I take my gross pay and deduct my salary-sacrifice pension contributions and payroll giving charitable donations. Then I add savings interest and dividends to give me my taxable income.

Dazed_and_C0nfused

kimwp said:

Dazed_and_C0nfused said:

My understanding is that savings interest, then dividends are added to pay after pension and charitable contributions to calculate taxable income. 

Where have you got that idea from?  You can allocate the Personal Allowance in which ever way gives you the lowest tax liability.

There are no more "allowances" once the Personal Allowance has been allocated the remaining income is taxed in a strict order,

Non savings non dividend income 
Then
Savings income (some could be taxed at 0%)
Finally 
Dividend income (the first £500 is taxed at 0%)

Do you mean relief at source pension contribution and Gift Aid donations?  If not can you explain exactly what you do mean as anything else would be quite unusual (pension contribution and charity wise).

I don't understand your question - I haven't mentioned Personal Allowance.

Re pension and charitable donations, I meant that I take my gross pay and deduct my salary-sacrifice pension contributions and payroll giving charitable donations. Then I add savings interest and dividends to give me my taxable income.

I think you are overcomplicating things.

You cannot deduct salary sacrifice pension contributions as they are employer contributions.

You have less taxable income because of the sacrifice but that will already be reflected on your P60 at the end of the tax year, you don't deduct anything from that.

Payroll giving is similar in that it works like net pay pension contributions.  So already reflected on your P60, there is nothing for you to deduct.

Most charitable donations referred to here are Gift Aid donations, which work in a completely different way.

Once you know the total taxable income (and types of income) you can allocate the Personal Allowance as is most beneficial for your income types/amounts and them whatever is left is taxed using the dozen or so different rates/rate bands for non savings non dividend income, savings interest and dividends.

kimwp

Dazed_and_C0nfused said:

kimwp said:

Dazed_and_C0nfused said:

My understanding is that savings interest, then dividends are added to pay after pension and charitable contributions to calculate taxable income. 

Where have you got that idea from?  You can allocate the Personal Allowance in which ever way gives you the lowest tax liability.

There are no more "allowances" once the Personal Allowance has been allocated the remaining income is taxed in a strict order,

Non savings non dividend income 
Then
Savings income (some could be taxed at 0%)
Finally 
Dividend income (the first £500 is taxed at 0%)

Do you mean relief at source pension contribution and Gift Aid donations?  If not can you explain exactly what you do mean as anything else would be quite unusual (pension contribution and charity wise).

I don't understand your question - I haven't mentioned Personal Allowance.

Re pension and charitable donations, I meant that I take my gross pay and deduct my salary-sacrifice pension contributions and payroll giving charitable donations. Then I add savings interest and dividends to give me my taxable income.

I think you are overcomplicating things.

You cannot deduct salary sacrifice pension contributions as they are employer contributions.

You have less taxable income because of the sacrifice but that will already be reflected on your P60 at the end of the tax year, you don't deduct anything from that.

Payroll giving is similar in that it works like net pay pension contributions.  So already reflected on your P60, there is nothing for you to deduct.

Most charitable donations referred to here are Gift Aid donations, which work in a completely different way.

Once you know the total taxable income (and types of income) you can allocate the Personal Allowance as is most beneficial for your income types/amounts and them whatever is left is taxed using the dozen or so different rates/rate bands for non savings non dividend income, savings interest and dividends.

Thank you dazed. I'm trying to manage my taxable income to be below the higher rate threshold and also take advantage of the various allowances for savings, dividends and CGT, so the P60 will arrive too late to be helpful.

DRS1

I don't understand your question - I haven't mentioned Personal Allowance.

Well actually you did

Otherwise (if above the personal allowance and below the additional rate threshold):

And just to be pedantic there is an additional rate (45%) where you lose the PSA entirely but you mean the higher rate threshold.

kimwp

DRS1 said:

I don't understand your question - I haven't mentioned Personal Allowance.

Well actually you did

Otherwise (if above the personal allowance and below the additional rate threshold):

And just to be pedantic there is an additional rate (45%) where you lose the PSA entirely but you mean the higher rate threshold.

I meant the additional rate threshold. I was trying to bound the question to taxable income being in the basic rate and higher rate bands. Ie "above the personal allowance and below the additional rate threshold"

Dazed_and_C0nfused

kimwp said:

Dazed_and_C0nfused said:

kimwp said:

Dazed_and_C0nfused said:

My understanding is that savings interest, then dividends are added to pay after pension and charitable contributions to calculate taxable income. 

Where have you got that idea from?  You can allocate the Personal Allowance in which ever way gives you the lowest tax liability.

There are no more "allowances" once the Personal Allowance has been allocated the remaining income is taxed in a strict order,

Non savings non dividend income 
Then
Savings income (some could be taxed at 0%)
Finally 
Dividend income (the first £500 is taxed at 0%)

Do you mean relief at source pension contribution and Gift Aid donations?  If not can you explain exactly what you do mean as anything else would be quite unusual (pension contribution and charity wise).

I don't understand your question - I haven't mentioned Personal Allowance.

Re pension and charitable donations, I meant that I take my gross pay and deduct my salary-sacrifice pension contributions and payroll giving charitable donations. Then I add savings interest and dividends to give me my taxable income.

I think you are overcomplicating things.

You cannot deduct salary sacrifice pension contributions as they are employer contributions.

You have less taxable income because of the sacrifice but that will already be reflected on your P60 at the end of the tax year, you don't deduct anything from that.

Payroll giving is similar in that it works like net pay pension contributions.  So already reflected on your P60, there is nothing for you to deduct.

Most charitable donations referred to here are Gift Aid donations, which work in a completely different way.

Once you know the total taxable income (and types of income) you can allocate the Personal Allowance as is most beneficial for your income types/amounts and them whatever is left is taxed using the dozen or so different rates/rate bands for non savings non dividend income, savings interest and dividends.

Thank you dazed. I'm trying to manage my taxable income to be below the higher rate threshold and also take advantage of the various allowances for savings, dividends and CGT, so the P60 will arrive too late to be helpful.

The exact same information that you need should be on your final payslip.

There are no allowances for savings and dividends.  There are three 0% tax bands though.

One of the implications with these 0% tax bands is that they use up some of the overarching rate band they fall into.

Say you had £1,000 basic rate band left after your non savings non dividend income was taxed.  And you were able to use the £500 savings nil rate band (aka Personal Savings Allowance).  That £500 of interest is taxed at 0% but it uses up £500 of your remaining basic rate band.

kimwp

Dazed_and_C0nfused said:

kimwp said:

Dazed_and_C0nfused said:

kimwp said:

Dazed_and_C0nfused said:

My understanding is that savings interest, then dividends are added to pay after pension and charitable contributions to calculate taxable income. 

Where have you got that idea from?  You can allocate the Personal Allowance in which ever way gives you the lowest tax liability.

There are no more "allowances" once the Personal Allowance has been allocated the remaining income is taxed in a strict order,

Non savings non dividend income 
Then
Savings income (some could be taxed at 0%)
Finally 
Dividend income (the first £500 is taxed at 0%)

Do you mean relief at source pension contribution and Gift Aid donations?  If not can you explain exactly what you do mean as anything else would be quite unusual (pension contribution and charity wise).

I don't understand your question - I haven't mentioned Personal Allowance.

Re pension and charitable donations, I meant that I take my gross pay and deduct my salary-sacrifice pension contributions and payroll giving charitable donations. Then I add savings interest and dividends to give me my taxable income.

I think you are overcomplicating things.

You cannot deduct salary sacrifice pension contributions as they are employer contributions.

You have less taxable income because of the sacrifice but that will already be reflected on your P60 at the end of the tax year, you don't deduct anything from that.

Payroll giving is similar in that it works like net pay pension contributions.  So already reflected on your P60, there is nothing for you to deduct.

Most charitable donations referred to here are Gift Aid donations, which work in a completely different way.

Once you know the total taxable income (and types of income) you can allocate the Personal Allowance as is most beneficial for your income types/amounts and them whatever is left is taxed using the dozen or so different rates/rate bands for non savings non dividend income, savings interest and dividends.

Thank you dazed. I'm trying to manage my taxable income to be below the higher rate threshold and also take advantage of the various allowances for savings, dividends and CGT, so the P60 will arrive too late to be helpful.

The exact same information that you need should be on your final payslip.

There are no allowances for savings and dividends.  There are three 0% tax bands though.

One of the implications with these 0% tax bands is that they use up some of the overarching rate band they fall into.

Say you had £1,000 basic rate band left after your non savings non dividend income was taxed.  And you were able to use the £500 savings nil rate band (aka Personal Savings Allowance).  That £500 of interest is taxed at 0% but it uses up £500 of your remaining basic rate band.

Would you not have a £1000 savings nil rate allowance in that case?

DRS1

kimwp said:

DRS1 said:

I don't understand your question - I haven't mentioned Personal Allowance.

Well actually you did

Otherwise (if above the personal allowance and below the additional rate threshold):

And just to be pedantic there is an additional rate (45%) where you lose the PSA entirely but you mean the higher rate threshold.

I meant the additional rate threshold. I was trying to bound the question to taxable income being in the basic rate and higher rate bands. Ie "above the personal allowance and below the additional rate threshold"

But if you are a higher rate taxpayer the PSA is only £500 not £1000

Dazed_and_C0nfused

kimwp said:

Dazed_and_C0nfused said:

kimwp said:

Dazed_and_C0nfused said:

kimwp said:

Dazed_and_C0nfused said:

My understanding is that savings interest, then dividends are added to pay after pension and charitable contributions to calculate taxable income. 

Where have you got that idea from?  You can allocate the Personal Allowance in which ever way gives you the lowest tax liability.

There are no more "allowances" once the Personal Allowance has been allocated the remaining income is taxed in a strict order,

Non savings non dividend income 
Then
Savings income (some could be taxed at 0%)
Finally 
Dividend income (the first £500 is taxed at 0%)

Do you mean relief at source pension contribution and Gift Aid donations?  If not can you explain exactly what you do mean as anything else would be quite unusual (pension contribution and charity wise).

I don't understand your question - I haven't mentioned Personal Allowance.

Re pension and charitable donations, I meant that I take my gross pay and deduct my salary-sacrifice pension contributions and payroll giving charitable donations. Then I add savings interest and dividends to give me my taxable income.

I think you are overcomplicating things.

You cannot deduct salary sacrifice pension contributions as they are employer contributions.

You have less taxable income because of the sacrifice but that will already be reflected on your P60 at the end of the tax year, you don't deduct anything from that.

Payroll giving is similar in that it works like net pay pension contributions.  So already reflected on your P60, there is nothing for you to deduct.

Most charitable donations referred to here are Gift Aid donations, which work in a completely different way.

Once you know the total taxable income (and types of income) you can allocate the Personal Allowance as is most beneficial for your income types/amounts and them whatever is left is taxed using the dozen or so different rates/rate bands for non savings non dividend income, savings interest and dividends.

Thank you dazed. I'm trying to manage my taxable income to be below the higher rate threshold and also take advantage of the various allowances for savings, dividends and CGT, so the P60 will arrive too late to be helpful.

The exact same information that you need should be on your final payslip.

There are no allowances for savings and dividends.  There are three 0% tax bands though.

One of the implications with these 0% tax bands is that they use up some of the overarching rate band they fall into.

Say you had £1,000 basic rate band left after your non savings non dividend income was taxed.  And you were able to use the £500 savings nil rate band (aka Personal Savings Allowance).  That £500 of interest is taxed at 0% but it uses up £500 of your remaining basic rate band.

Would you not have a £1000 savings nil rate allowance in that case?

Depends on what your total taxable income was.

There could be £10k dividends still to be taxed 😉