Personal Savings Allowance near the 40% tax threshold

rightfoot_shifter

Can anyone give me a definitive on whether £500 or £1000 PSA would apply under these circumstances?:

All earnings without savings & investment interest= £50,000

Earnings on savings & investment interest=£1,000

Does the earnings on savings & investment tip you into the 40% tax bracket for all the PSA?

Sarahspangles

The higher rate tax band starts at £50,270 so if your earnings are £50,000 and savings interest is £1,000 your income is £51,000 and you are liable for higher rate tax. This also decreases your personal savings allowance to £500.

Your PAYE notice of coding will be amended to recover the net tax underpaid. On my notice the detailed explanation separates out the adjustments to recover higher rate tax and the underpaid tax on interest.

You can reverse this with a contribution to a pension scheme. 

Dazed_and_C0nfused

rightfoot_shifter said:

Can anyone give me a definitive on whether £500 or £1000 PSA would apply under these circumstances?:

All earnings without savings & investment interest= £50,000

Earnings on savings & investment interest=£1,000

Does the earnings on savings & investment tip you into the 40% tax bracket for all the PSA?

Your savings nil rate band (aka Personal Savings Allowance) would be £500.

The interest would normally be taxed,

£270 x 0% (savings nil rate in basic rate band)
£230 x 0% (savings nil rate in higher rate band)
£500 x 40% (savings higher rate)

But allocating £270 of your Personal Allowance to the interest might give a slight better outcome.
NB. Think this saves £54.

zagfles

Dazed_and_C0nfused said:

rightfoot_shifter said:

Can anyone give me a definitive on whether £500 or £1000 PSA would apply under these circumstances?:

All earnings without savings & investment interest= £50,000

Earnings on savings & investment interest=£1,000

Does the earnings on savings & investment tip you into the 40% tax bracket for all the PSA?

Your savings nil rate band (aka Personal Savings Allowance) would be £500.

The interest would normally be taxed,

£270 x 0% (savings nil rate in basic rate band)
£230 x 0% (savings nil rate in higher rate band)
£500 x 40% (savings higher rate)

But allocating £270 of your Personal Allowance to the interest might give a slight better outcome.
NB. Think this saves £54.

Would the tax calculation automatically do this or would you need to ask HMRC to reallocate the PA? 

Dazed_and_C0nfused

zagfles said:

Dazed_and_C0nfused said:

rightfoot_shifter said:

Can anyone give me a definitive on whether £500 or £1000 PSA would apply under these circumstances?:

All earnings without savings & investment interest= £50,000

Earnings on savings & investment interest=£1,000

Does the earnings on savings & investment tip you into the 40% tax bracket for all the PSA?

Your savings nil rate band (aka Personal Savings Allowance) would be £500.

The interest would normally be taxed,

£270 x 0% (savings nil rate in basic rate band)
£230 x 0% (savings nil rate in higher rate band)
£500 x 40% (savings higher rate)

But allocating £270 of your Personal Allowance to the interest might give a slight better outcome.
NB. Think this saves £54.

Would the tax calculation automatically do this or would you need to ask HMRC to reallocate the PA? 

It should do, it's known as beneficial ordering.

But it doesn't always seem to happen.  A recent thread involving dividends had someone charged ~£90 too much as the Personal Allowance wasn't allocated in the most beneficial way.

Once the Personal Allowance has been allocated any remaining income is taxed in a strict order, non savings non dividend income first then savings income and finally dividends.