Taxation of savings interest and dividends with other income just below the higher rate threshold.

Dazed_and_C0nfused

Newly_retired said:

So it is possible to actually be worse off if savings interest pushes me just into the 40% band as my PSA is reduced to £500.  Maybe I shouldn't always be looking for the highest rates?
Though I can mitigate this by Gift Aiding.

Or pension contributions (if you are under 75).

kimwp

Newly_retired said:

So it is possible to actually be worse off if savings interest pushes me just into the 40% band as my PSA is reduced to £500.  Maybe I shouldn't always be looking for the highest rates?
Though I can mitigate this by Gift Aiding.

That's my understanding. It would be much simpler if everyone had the same savings interest allowance.

saajan_12

Newly_retired said:

So it is possible to actually be worse off if savings interest pushes me just into the 40% band as my PSA is reduced to £500.  Maybe I shouldn't always be looking for the highest rates?
Though I can mitigate this by Gift Aiding.

Yes, this is the result of cliff hanger thresholds, so if you go up £1 over the higher rate threshold, you lose £500 of PSA. 

Most other cases have progressive bands, on salary income, 40% tax only applies above the band and doesn't affect the personal allowance or the income taxed at 20%. Even above 100k where you start losing the personal allowance, its staggered so for every £2 you lose £1 of allowance, resulting in an effective 70% tax rate - note not above 100%. 

Technically with savings, if you were earning £49270 salary and £1000 interest, then an additional £1 - £125 income actually loses you money due to the PSA drop. However above that it goes back to being smoother. Silly, but I guess its a relatively small amount, ie at most £100 loss. 

Dazed_and_C0nfused

saajan_12 said:

Newly_retired said:

So it is possible to actually be worse off if savings interest pushes me just into the 40% band as my PSA is reduced to £500.  Maybe I shouldn't always be looking for the highest rates?
Though I can mitigate this by Gift Aiding.

Yes, this is the result of cliff hanger thresholds, so if you go up £1 over the higher rate threshold, you lose £500 of PSA. 

Most other cases have progressive bands, on salary income, 40% tax only applies above the band and doesn't affect the personal allowance or the income taxed at 20%. Even above 100k where you start losing the personal allowance, its staggered so for every £2 you lose £1 of allowance, resulting in an effective 70% tax rate - note not above 100%. 

Technically with savings, if you were earning £49270 salary and £1000 interest, then an additional £1 - £125 income actually loses you money due to the PSA drop. However above that it goes back to being smoother. Silly, but I guess its a relatively small amount, ie at most £100 loss. 

The new Winter Fuel charge will make this seem a minor irritation for some people!

£1 of income above £35,000 and it could cost people £305.10 😳

FIREDreamer

saajan_12 said:

Newly_retired said:

So it is possible to actually be worse off if savings interest pushes me just into the 40% band as my PSA is reduced to £500.  Maybe I shouldn't always be looking for the highest rates?
Though I can mitigate this by Gift Aiding.

Yes, this is the result of cliff hanger thresholds, so if you go up £1 over the higher rate threshold, you lose £500 of PSA. 

Most other cases have progressive bands, on salary income, 40% tax only applies above the band and doesn't affect the personal allowance or the income taxed at 20%. Even above 100k where you start losing the personal allowance, its staggered so for every £2 you lose £1 of allowance, resulting in an effective 70% tax rate - note not above 100%. 

Technically with savings, if you were earning £49270 salary and £1000 interest, then an additional £1 - £125 income actually loses you money due to the PSA drop. However above that it goes back to being smoother. Silly, but I guess it’s a relatively small amount, ie at most £100 loss. 

The effective rate is 60% due to losing the personal allowance, not 70%.