Exceeding PSA with new pay rise - what to do?

JonSalji

Receive a pay rise this month that takes me into the higher tax rate. Nice surprise but that means the total interest from my saving will take me over the PSA for this financial year. I have the following accounts and expected interest this FY:

NatWest saver - approx £276

Club Lloyds saver - £150, matures in Oct

TSB fixed - £256, matures in Nov

NSandI bonds - £257, matures in Sept

I would like some advice as to how best to reduce my taxable interest as much as possible. I won’t be able to move the money in the fixed and bonds account, so I presume withdrawing the Club Lloyds and NatWest Savers into a cash ISA.

Or I should just leave them all where they are and just pay the additional tax this FY for minimal hassle although I’m sure this is not the smartest way forward.  I have just manage to hit the £5k limit on the NatWest after saving for almost 4 years so this feels bittersweet and I’m reluctant to take it all out 😂 

Dazed_and_C0nfused

JonSalji said:

Receive a pay rise this month that takes me into the higher tax rate. Nice surprise but that means the total interest from my saving will take me over the PSA for this financial year. I have the following accounts and expected interest this FY:

NatWest saver - approx £276

Club Lloyds saver - £150, matures in Oct

TSB fixed - £256, matures in Nov

NSandI bonds - £257, matures in Sept

I would like some advice as to how best to reduce my taxable interest as much as possible. I won’t be able to move the money in the fixed and bonds account, so I presume withdrawing the Club Lloyds and NatWest Savers into a cash ISA.

Or I should just leave them all where they are and just pay the additional tax this FY for minimal hassle although I’m sure this is not the smartest way forward.  I have just manage to hit the £5k limit on the NatWest after saving for almost 4 years so this feels bittersweet and I’m reluctant to take it all out 😂 

It all depends on the interest rates really.

4.0% taxed at 20% is better than getting 3% in an ISA.

Is paying additional pension contributions to remain a basic rate payer an option?

NB.  Remember you need to include the taxable interest when determining if you are a basic rate or higher rate payer, it's not just based on your earnings.

Kim_13

I’d be inclined to leave the NatWest as it is given the time taken to attain a £5,000 balance, which leaves the Lloyds one if you are able to “refresh” it into an Easy Saver and begin another at the same fixed rate to mature in the next tax year. If the rate has fallen, then you’re likely better off paying the tax than moving onto a lower rate before you have to.

Move the NS&I bond and TSB fix into an ISA or Premium Bonds as they mature, and do the same with any further savings after tax unless 0.6 x the rate is higher than the ISA rate.

justwhat

I prefer low maintenance lol Salary sacrifice/Company pension , cash isa and avc is the route i would take. 

JonSalji

Dazed_and_C0nfused said:

JonSalji said:

Receive a pay rise this month that takes me into the higher tax rate. Nice surprise but that means the total interest from my saving will take me over the PSA for this financial year. I have the following accounts and expected interest this FY:

NatWest saver - approx £276

Club Lloyds saver - £150, matures in Oct

TSB fixed - £256, matures in Nov

NSandI bonds - £257, matures in Sept

I would like some advice as to how best to reduce my taxable interest as much as possible. I won’t be able to move the money in the fixed and bonds account, so I presume withdrawing the Club Lloyds and NatWest Savers into a cash ISA.

Or I should just leave them all where they are and just pay the additional tax this FY for minimal hassle although I’m sure this is not the smartest way forward.  I have just manage to hit the £5k limit on the NatWest after saving for almost 4 years so this feels bittersweet and I’m reluctant to take it all out 😂 

It all depends on the interest rates really.

4.0% taxed at 20% is better than getting 3% in an ISA.

Is paying additional pension contributions to remain a basic rate payer an option?

NB.  Remember you need to include the taxable interest when determining if you are a basic rate or higher rate payer, it's not just based on your earnings.

Thank you. I have definitely busted the basic rate with this increase in pay. 

Please can I check, my PSA limit is now reduced to £500 but will interest above that be taxed at 20% or 40%? I am under the assumption it’s 40%?

JonSalji

justwhat said:

I prefer low maintenance lol Salary sacrifice/Company pension , cash isa and avc is the route i would take. 

I have a civil service alpha pension so not sure what salary sacrifice mechanisms i have to lower my taxable income, but happy to hear any suggestions! 

masonic

JonSalji said:

Dazed_and_C0nfused said:

JonSalji said:

Receive a pay rise this month that takes me into the higher tax rate. Nice surprise but that means the total interest from my saving will take me over the PSA for this financial year. I have the following accounts and expected interest this FY:

NatWest saver - approx £276

Club Lloyds saver - £150, matures in Oct

TSB fixed - £256, matures in Nov

NSandI bonds - £257, matures in Sept

I would like some advice as to how best to reduce my taxable interest as much as possible. I won’t be able to move the money in the fixed and bonds account, so I presume withdrawing the Club Lloyds and NatWest Savers into a cash ISA.

Or I should just leave them all where they are and just pay the additional tax this FY for minimal hassle although I’m sure this is not the smartest way forward.  I have just manage to hit the £5k limit on the NatWest after saving for almost 4 years so this feels bittersweet and I’m reluctant to take it all out 😂 

It all depends on the interest rates really.

4.0% taxed at 20% is better than getting 3% in an ISA.

Is paying additional pension contributions to remain a basic rate payer an option?

NB.  Remember you need to include the taxable interest when determining if you are a basic rate or higher rate payer, it's not just based on your earnings.

Thank you. I have definitely busted the basic rate with this increase in pay. 

Please can I check, my PSA limit is now reduced to £500 but will interest above that be taxed at 20% or 40%? I am under the assumption it’s 40%?

It will be 40%

JonSalji said:

justwhat said:

I prefer low maintenance lol Salary sacrifice/Company pension , cash isa and avc is the route i would take. 

I have a civil service alpha pension so not sure what salary sacrifice mechanisms i have to lower my taxable income, but happy to hear any suggestions! 

If you can't do it with your workplace pension, you could open your own SIPP and contribute to that with net pay to raise your basic rate band.

JonSalji

Kim_13 said:

I’d be inclined to leave the NatWest as it is given the time taken to attain a £5,000 balance, which leaves the Lloyds one if you are able to “refresh” it into an Easy Saver and begin another at the same fixed rate to mature in the next tax year. If the rate has fallen, then you’re likely better off paying the tax than moving onto a lower rate before you have to.

Move the NS&I bond and TSB fix into an ISA or Premium Bonds as they mature, and do the same with any further savings after tax unless 0.6 x the rate is higher than the ISA rate.

Thanks for this, it is really clear! I just checked, my Lloyds is 6.25% and my ISA is 4.1%, which is still higher than 0.6x 6.25%. (3.75) so I will stop paying into the Lloyds and move it all into ISA. 

Good tip about trying to refresh the account. 

Dazed_and_C0nfused

JonSalji said:

Dazed_and_C0nfused said:

JonSalji said:

Receive a pay rise this month that takes me into the higher tax rate. Nice surprise but that means the total interest from my saving will take me over the PSA for this financial year. I have the following accounts and expected interest this FY:

NatWest saver - approx £276

Club Lloyds saver - £150, matures in Oct

TSB fixed - £256, matures in Nov

NSandI bonds - £257, matures in Sept

I would like some advice as to how best to reduce my taxable interest as much as possible. I won’t be able to move the money in the fixed and bonds account, so I presume withdrawing the Club Lloyds and NatWest Savers into a cash ISA.

Or I should just leave them all where they are and just pay the additional tax this FY for minimal hassle although I’m sure this is not the smartest way forward.  I have just manage to hit the £5k limit on the NatWest after saving for almost 4 years so this feels bittersweet and I’m reluctant to take it all out 😂 

It all depends on the interest rates really.

4.0% taxed at 20% is better than getting 3% in an ISA.

Is paying additional pension contributions to remain a basic rate payer an option?

NB.  Remember you need to include the taxable interest when determining if you are a basic rate or higher rate payer, it's not just based on your earnings.

Thank you. I have definitely busted the basic rate with this increase in pay. 

Please can I check, my PSA limit is now reduced to £500 but will interest above that be taxed at 20% or 40%? I am under the assumption it’s 40%?

The first £500 will be taxed at 0% and anything above that at 40%.

My example would have better using 40% but presumably you get the idea, whatever gives the best net return, be it taxable account of ISA is best (financially).

JonSalji

justwhat said:

I prefer low maintenance lol Salary sacrifice/Company pension , cash isa and avc is the route i would take. 

I have a civil service alpha pension so not sure what salary sacrifice mechanisms i have to lower my taxable income, but happy to hear any suggestions! 

If you can't do it with your workplace pension, you could open your own SIPP and contribute to that with net pay to raise your basic rate band.

Thanks, I do have a SIPP but have just been contributing as and when I have extra money so will try to work out a consistent contribution 

Swipe

JonSalji said:

justwhat said:

I prefer low maintenance lol Salary sacrifice/Company pension , cash isa and avc is the route i would take. 

I have a civil service alpha pension so not sure what salary sacrifice mechanisms i have to lower my taxable income, but happy to hear any suggestions! 

If you can't do it with your workplace pension, you could open your own SIPP and contribute to that with net pay to raise your basic rate band.

Thanks, I do have a SIPP but have just been contributing as and when I have extra money so will try to work out a consistent contribution 

You'll need to claim it back manually. can't you do an AVC through your work?