Is Martin Wrong about Savings Allowance Tax?

PixelPound

Isthisforreal99 said:

DRS1 said:

Isthisforreal99 said:

Don't have time tonight to run the figures but you may have made the mistake of saying the Personal Savings Allowance of £500 in example 1 is 'tax free. It's not it's a 0% rate, an important difference and that 0% rate may use the balance of the available basic rate band, leaving the balance of the interest taxable at 40%.

Which may or may not be correct, will confirm tomorrow.

I don't think so - including the full £1000 only takes you to £30 above the higher rate threshold.  So the OP is right.  But I am sure there have been other posts about this cut off and the result is not always the obvious one.

Yeah, I skim read the actual figures and agree it shouldn't be possible to tax £500 at higher rate when only £30 over the higher rate threshold.

If you are in the HR tax band your 0% tax on interest is £500, anything more is taxed (yes it makes sense that if you are just £30 above then £470 will be taxed at 20% and just £30 at 40%). However you are still taxed at above zero. Where as earning £50 less in interest means it is all done at 0%.

So yes it shouldn't be £800 after tax (at 40% on the £500) but be £894 (after tax of 20% on £470 and 40% on £30), which is still less than the £950 tax free if below the threshold.

jimjames

This is the link to the post by Martin I was referring to

https://www.facebook.com/share/v/1CbHZYVT8b/

masonic said:

I agree that with £1000 of savings income, £500 of the interest would be taxed at 0% (taking total income to £49,800), £470 at 20% (taking total income to £50,270) and therefore the final £30 is taxed at 40%. So £106 of extra tax for £50 of extra income, which is worse by £56.

Thanks, while his overall point is correct the calculations aren't.