Optimising savings interest, dividends and CGT allowance

kimwp

DRS1 said:

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

"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):"

Might be easier if you read my whole post.

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.

I'm trying to work this out for the 25-26 tax year, to allocate money to ISAs, dividends funds, non-dividend funds, while keeping below the higher rate threshold with pension contributions. 

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.

I'm trying to work this out for the 25-26 tax year, to allocate money to ISAs, dividends funds, non-dividend funds, while keeping below the higher rate threshold with pension contributions. 

Shame, I haven't got into that forward thinking yet!

DRS1

kimwp said:

DRS1 said:

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

"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):"

Might be easier if you read my whole post.

Easier still if you got it right.  The passage beginning "Otherwise" is just wrong on its face,

kimwp

DRS1 said:

kimwp said:

DRS1 said:

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

"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):"

Might be easier if you read my whole post.

Easier still if you got it right.  The passage beginning "Otherwise" is just wrong on its face,

Well, rewrite it to be right then?

kimwp

Dazed_and_C0nfused said:

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.

I'm trying to work this out for the 25-26 tax year, to allocate money to ISAs, dividends funds, non-dividend funds, while keeping below the higher rate threshold with pension contributions. 

Shame, I haven't got into that forward thinking yet!

It's because I wasn't forward thinking enough previously (and lacking in the relevant financial knowledge)

DRS1

kimwp said:

DRS1 said:

kimwp said:

DRS1 said:

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

"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):"

Might be easier if you read my whole post.

Easier still if you got it right.  The passage beginning "Otherwise" is just wrong on its face,

Well, rewrite it to be right then?

OK I accept you understand it.  So as a matter of interest can you tell me the tax rate applicable to savings interest in this example?

X has Salary of £50,000 and bank interest of £900.  No other income and no deductions/adjustments for pension contributions or gift aid.  Is the £900 interest taxed at
a) 0%
b) £500 at 0%, £270 at 20% and £130 at 40%
c) £500 at 0% 400 at 40%

I think the answer is c) but I could be wrong.

Dazed_and_C0nfused

DRS1 said:

kimwp said:

DRS1 said:

kimwp said:

DRS1 said:

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

"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):"

Might be easier if you read my whole post.

Easier still if you got it right.  The passage beginning "Otherwise" is just wrong on its face,

Well, rewrite it to be right then?

OK I accept you understand it.  So as a matter of interest can you tell me the tax rate applicable to savings interest in this example?

X has Salary of £50,000 and bank interest of £900.  No other income and no deductions/adjustments for pension contributions or gift aid.  Is the £900 interest taxed at
a) 0%
b) £500 at 0%, £270 at 20% and £130 at 40%
c) £500 at 0% 400 at 40%

I think the answer is c) but I could be wrong.

I'm going with c) as well, although described slightly differently.

£270 x 0% (savings nil rate within basic rate band)
£230 x 0% (savings nil rate within higher rate band)
£400 x 40% (savings higher rate)

kimwp

I agree with c. 
If the salary was £49,500, then the tax on the savings income would be
£500 at 0% (nil rate entirely within basic rate band)
£270 at 20% (outside nil rate allowance, but within basic tax band)
Remainder at 40% (above higher rate threshold)