£1000/500 tax free savings interest question

VXman

I accidently went into the 40% tax threshold on earnings (just by £500) . I understand the tax free savings threshold is reduced to £500 from £1000. 

Question - Are the savings over £500 then taxed at 20% or 40%?

If they are that seems a double whammy????

Mark_d

That's the way I understand the rules

Dazed_and_C0nfused

VXman said:

I accidently went into the 40% tax threshold on earnings (just by £500) . I understand the tax free savings threshold is reduced to £500 from £1000. 

Question - Are the savings over £500 then taxed at 20% or 40%?

If they are that seems a double whammy????

ISA's are tax free, normal non ISA interest is all taxable.

If you are a higher rate payer the first £500 will be taxed at 0% though.

From what you have posted the rest of the interest would be taxed at 40% yes.

jimjames

VXman said:

Question - Are the savings over £500 then taxed at 20% or 40%?

Savings are not taxed at all. Interest that you earn on savings might be though.

If you go into the higher rate band then your interest earned is added to your income and taxed so yes interest over £500 could be taxed at 40%. However your interest could also take you into the higher rate band when your income doesn't, in which case some of it might be taxed at 20% and some at 40%. But also in that situation you will still only have the £500 limit as that is determined by your total income including interest.

You can make pension payments though which will have the effect of reducing your taxable income if it's for the current tax year.

EthicsGradient

jimjames said:

VXman said:

Question - Are the savings over £500 then taxed at 20% or 40%?

Savings are not taxed at all. Interest that you earn on savings might be though.

If you go into the higher rate band then your interest earned is added to your income and taxed so yes interest over £500 could be taxed at 40%. However your interest could also take you into the higher rate band when your income doesn't, in which case some of it might be taxed at 20% and some at 40%. But also in that situation you will still only have the £500 limit as that is determined by your total income including interest.

You can make pension payments though which will have the effect of reducing your taxable income if it's for the current tax year.

If you self-assess, you can also donate to charity, and the Gift Aid is claimed by your 20% band increasing - and you can do that in the next tax year, by saying on the 24-25 form "I donated this in 25-26, but want it counted as if it was in 24-25" (and then you have to say that again on the 25-26 form). Whether there's a way of those who don't self-assess doing this, I don't know.

MX5huggy

Is this about this tax year? 

VXman

MX5huggy said:

Is this about this tax year? 

No. 23-24. Just had notification that I owe £157 in tax and seems it's down to savings interest of £1275. However, it's being taxed above £500 instead of £1000 as I have just creeped into the 40% tax bracket. Only by £502. 

Seems mean to charge 40% on the savings interest AND reduce the threshold to £500. 

Will have to work harder as keeping my income below £50270 and my savings interest under £1000

Although - if this is the case it should be a tax bill of £310 ??? 

Maybe it's the £1275 that has taken me over? 

VXman

jimjames said:

VXman said:

Question - Are the savings over £500 then taxed at 20% or 40%?

Savings are not taxed at all. Interest that you earn on savings might be though.

If you go into the higher rate band then your interest earned is added to your income and taxed so yes interest over £500 could be taxed at 40%. However your interest could also take you into the higher rate band when your income doesn't, in which case some of it might be taxed at 20% and some at 40%. But also in that situation you will still only have the £500 limit as that is determined by your total income including interest.

You can make pension payments though which will have the effect of reducing your taxable income if it's for the current tax year.

Right - closer examination it looks like you are on the correct track here.

The reason I have crossed the 40% threshold is because of the savings interest. £1275 has taken me to an income of £50732 ( £462 above the threshold) 

As a result the have reduced my savings interest tax free element to £500. 

That leaves £775 to be taxed. This seems to be taxed at 20% though. £775 X 20% = £155. (Not the £157 they say I owe though but pretty close) 

Does that all seem correct?
 

Dazed_and_C0nfused

VXman said:

jimjames said:

VXman said:

Question - Are the savings over £500 then taxed at 20% or 40%?

Savings are not taxed at all. Interest that you earn on savings might be though.

If you go into the higher rate band then your interest earned is added to your income and taxed so yes interest over £500 could be taxed at 40%. However your interest could also take you into the higher rate band when your income doesn't, in which case some of it might be taxed at 20% and some at 40%. But also in that situation you will still only have the £500 limit as that is determined by your total income including interest.

You can make pension payments though which will have the effect of reducing your taxable income if it's for the current tax year.

Right - closer examination it looks like you are on the correct track here.

The reason I have crossed the 40% threshold is because of the savings interest. £1275 has taken me to an income of £50732 ( £462 above the threshold) 

As a result the have reduced my savings interest tax free element to £500. 

That leaves £775 to be taxed. This seems to be taxed at 20% though. £775 X 20% = £155. (Not the £157 they say I owe though but pretty close) 

Does that all seem correct?
 

Most people on PAYE owe £1.80 or £3.60 each year.  Which HMRC tend to ignore unless you owe money for other reasons.

Without the details of the calculation it's all guesswork really.

Ocelot

VXman said:

jimjames said:

VXman said:

Question - Are the savings over £500 then taxed at 20% or 40%?

Savings are not taxed at all. Interest that you earn on savings might be though.

If you go into the higher rate band then your interest earned is added to your income and taxed so yes interest over £500 could be taxed at 40%. However your interest could also take you into the higher rate band when your income doesn't, in which case some of it might be taxed at 20% and some at 40%. But also in that situation you will still only have the £500 limit as that is determined by your total income including interest.

You can make pension payments though which will have the effect of reducing your taxable income if it's for the current tax year.

Right - closer examination it looks like you are on the correct track here.

The reason I have crossed the 40% threshold is because of the savings interest. £1275 has taken me to an income of £50732 ( £462 above the threshold) 

As a result the have reduced my savings interest tax free element to £500. 

That leaves £775 to be taxed. This seems to be taxed at 20% though. £775 X 20% = £155. (Not the £157 they say I owe though but pretty close) 

Does that all seem correct?
 

That does seem likely. Savings interest will be added to salary and can tip you into the higher band.

EthicsGradient

VXman said:

jimjames said:

VXman said:

Question - Are the savings over £500 then taxed at 20% or 40%?

Savings are not taxed at all. Interest that you earn on savings might be though.

If you go into the higher rate band then your interest earned is added to your income and taxed so yes interest over £500 could be taxed at 40%. However your interest could also take you into the higher rate band when your income doesn't, in which case some of it might be taxed at 20% and some at 40%. But also in that situation you will still only have the £500 limit as that is determined by your total income including interest.

You can make pension payments though which will have the effect of reducing your taxable income if it's for the current tax year.

Right - closer examination it looks like you are on the correct track here.

The reason I have crossed the 40% threshold is because of the savings interest. £1275 has taken me to an income of £50732 ( £462 above the threshold) 

As a result the have reduced my savings interest tax free element to £500. 

That leaves £775 to be taxed. This seems to be taxed at 20% though. £775 X 20% = £155. (Not the £157 they say I owe though but pretty close) 

Does that all seem correct?
 

Yes, I think that would be how it works out. You earned income seems to be 50732-1275=£49,457. Your total earned and savings income is over £50,270 (assuming no pension or charity donations from your income), so your 0% band is £500. The other £775, however, fits in the space between £49,457 and £50,270 (ie £813), so that is all taxed at 20%.