Does Personal Savings Allowance count towards income threshold?

Lifes_Grand_Plan

Hi folks,

Due to a pay rise last year, i'm just about to tip into the higher rate 40% tax band by April. To avoid this i've been doing AVCs into my pension to bring me to an expected taxable income by April of £50,058, so £212 shy of going into 40%

However I've completely lost the plot with fixed rate savings accounts I might have had that matured earlier in the year, so have no idea how much interest I might have earned. It definitely wont be over the £1000 personal allowance, but say it was £999, would that count towards my taxable income, so my £50,058 + £999 interest, would be £51,057 which is into 40% bracket, which would then reduce my personal interest allowance to £500 not £1000...

Not sure if i've explained that well but hopefully someone will know what I mean and be able to advise.

Lifes_Grand_Plan

EDIT:
Just looked on HMRC Communicy Pages (forum style) and found some examples that clarify a similar situation:

Example 1
Taxable income excluding savings interest: £49,320
Taxable interest from savings : £950
Total taxable income : £50,270
Deduct personal allowance : (£12,570)
Taxable income after personal allowance : £37,700
Therefore tax band = basic rate 20%
Qualify for PSA of £1,000
PSA utilised = £950
Taxable amount after PSA applied = £36,750
Tax @ 20% = £7,350

Example 2
Taxable income excluding savings interest: £49,321
Taxable interest from savings : £950
Total taxable income : £50,271
Deduct personal allowance : (£12,570)
Taxable income after personal allowance : £37,701
Therefore tax band = basic rate 40%
Qualify for PSA of £500 PSA Utilised : £500
Taxable amount after PSA = £37,201
Tax @ 20% = £7,440.20

So it sounds like I better go back through all my accounts and calculate interest received to make sure that i'm not a £1 over the 20% threshold, or it'll cost me £90 in additional tax. And if I am over, setup a few one off AVCs to bring it under.

What a faff, but rather have £90 in my pocket than theirs.

On-the-coast

Correct. 

You can also think about whether you’ve made any charitable contributions (ticked the box on “giftaid” etc)…

zagfles

Lifes_Grand_Plan said:

Hi folks,

Due to a pay rise last year, i'm just about to tip into the higher rate 40% tax band by April. To avoid this i've been doing AVCs into my pension to bring me to an expected taxable income by April of £50,058, so £212 shy of going into 40%

However I've completely lost the plot with fixed rate savings accounts I might have had that matured earlier in the year, so have no idea how much interest I might have earned. It definitely wont be over the £1000 personal allowance, but say it was £999, would that count towards my taxable income, so my £50,058 + £999 interest, would be £51,057 which is into 40% bracket, which would then reduce my personal interest allowance to £500 not £1000...

Not sure if i've explained that well but hopefully someone will know what I mean and be able to advise.

Yes, basically. You might want to consider upping your pension contributions so your taxable income inc interest is under the higher rate threshold. 

Dazed_and_C0nfused

Lifes_Grand_Plan said:

EDIT:
Just looked on HMRC Communicy Pages (forum style) and found some examples that clarify a similar situation:

Example 1
Taxable income excluding savings interest: £49,320
Taxable interest from savings : £950
Total taxable income : £50,270
Deduct personal allowance : (£12,570)
Taxable income after personal allowance : £37,700
Therefore tax band = basic rate 20%
Qualify for PSA of £1,000
PSA utilised = £950
Taxable amount after PSA applied = £36,750
Tax @ 20% = £7,350

Example 2
Taxable income excluding savings interest: £49,321
Taxable interest from savings : £950
Total taxable income : £50,271
Deduct personal allowance : (£12,570)
Taxable income after personal allowance : £37,701
Therefore tax band = basic rate 40%
Qualify for PSA of £500 PSA Utilised : £500
Taxable amount after PSA = £37,201
Tax @ 20% = £7,440.20

So it sounds like I better go back through all my accounts and calculate interest received to make sure that i'm not a £1 over the 20% threshold, or it'll cost me £90 in additional tax. And if I am over, setup a few one off AVCs to bring it under.

What a faff, but rather have £90 in my pocket than theirs.

Example 2 is wrong.

The non savings non dividend income is taxed first (after the Personal Allowance has been allocated).

So £49,321 less £12,570 = £36,751 to be taxed (tax payable £7,350.20)

As there is no Personal Allowance left all of the interest is taxed.  £500 x 0% (savings nil rate within the basic rate band).  The next £449 of the interest is taxed at 20% (savings basic rate within the remaining basic rate band).  And the final £1 is taxed at 40%.

Total tax due on the savings interest is £90.20

Total tax overall is £7,350.20 + £90.20 = £7,440.40.

Although in theory only a tiny difference of 20p having that £1 taxed at 40% would make this person ineligible for Marriage Allowance.  Which would cost someone £252 😳