Avoiding 40% tax and reduction of personal savings allowance

Pat38493

I will have £46270 of taxable income from 2 income streams in the year (number altered for ease of question but close to reality).

I will also have about £1K of savings interest.

How much can I take out from my pension drawdown pot (TFC already taken) if I want to avoid the personal savings allowance being reduced to £500?  Is it £4K or £3K?  

Point is I am not sure whether if I take 4K out from my pension, this makes my taxable earnings £50270, but then I have to add the £1K savings interest so now I trigger the 40% tax band, my personal savings  allowance goes down to £500, and I end up paying 40% tax on £500?

TadleyBaggie

46 million pounds, deffo into higher tax!

Pat38493

TadleyBaggie said:

46 million pounds, deffo into higher tax!

Sorry - fixed typo

eskbanker

Pat38493 said:

I will have £46270 of taxable income from 2 income streams in the year (number altered for ease of question but close to reality).

I will also have about £1K of savings interest.

How much can I take out from my pension drawdown pot (TFC already taken) if I want to avoid the personal savings allowance being reduced to £500?  Is it £4K or £3K?  

Point is I am not sure whether if I take 4K out from my pension, this makes my taxable earnings £50270, but then I have to add the £1K savings interest so now I trigger the 40% tax band, my personal savings  allowance goes down to £500, and I end up paying 40% tax on £500?

The PSA reduces to £500 if your total taxable income, including savings interest, exceeds £50,270, so it's £3K of headroom you have.

See this current thread:

https://forums.moneysavingexpert.com/discussion/6634015/is-martin-wrong-about-savings-allowance-tax

Dazed_and_C0nfused

Pat38493 said:

I will have £46270 of taxable income from 2 income streams in the year (number altered for ease of question but close to reality).

I will also have about £1K of savings interest.

How much can I take out from my pension drawdown pot (TFC already taken) if I want to avoid the personal savings allowance being reduced to £500?  Is it £4K or £3K?  

Point is I am not sure whether if I take 4K out from my pension, this makes my taxable earnings £50270, but then I have to add the £1K savings interest so now I trigger the 40% tax band, my personal savings  allowance goes down to £500, and I end up paying 40% tax on £500?

Have you made any Gift Aid donations or relief at source pension contributions which would increase your basic rate band?

Pat38493

Dazed_and_C0nfused said:

Pat38493 said:

I will have £46270 of taxable income from 2 income streams in the year (number altered for ease of question but close to reality).

I will also have about £1K of savings interest.

How much can I take out from my pension drawdown pot (TFC already taken) if I want to avoid the personal savings allowance being reduced to £500?  Is it £4K or £3K?  

Point is I am not sure whether if I take 4K out from my pension, this makes my taxable earnings £50270, but then I have to add the £1K savings interest so now I trigger the 40% tax band, my personal savings  allowance goes down to £500, and I end up paying 40% tax on £500?

Have you made any Gift Aid donations or relief at source pension contributions which would increase your basic rate band?

I had already adjusted for that but yes

Dazed_and_C0nfused

Pat38493 said:

Dazed_and_C0nfused said:

Pat38493 said:

I will have £46270 of taxable income from 2 income streams in the year (number altered for ease of question but close to reality).

I will also have about £1K of savings interest.

How much can I take out from my pension drawdown pot (TFC already taken) if I want to avoid the personal savings allowance being reduced to £500?  Is it £4K or £3K?  

Point is I am not sure whether if I take 4K out from my pension, this makes my taxable earnings £50270, but then I have to add the £1K savings interest so now I trigger the 40% tax band, my personal savings  allowance goes down to £500, and I end up paying 40% tax on £500?

Have you made any Gift Aid donations or relief at source pension contributions which would increase your basic rate band?

I had already adjusted for that but yes

How?  They have no impact on the amount of taxable income.

Strummer22

Dazed_and_C0nfused said:

Pat38493 said:

Dazed_and_C0nfused said:

Pat38493 said:

I will have £46270 of taxable income from 2 income streams in the year (number altered for ease of question but close to reality).

I will also have about £1K of savings interest.

How much can I take out from my pension drawdown pot (TFC already taken) if I want to avoid the personal savings allowance being reduced to £500?  Is it £4K or £3K?  

Point is I am not sure whether if I take 4K out from my pension, this makes my taxable earnings £50270, but then I have to add the £1K savings interest so now I trigger the 40% tax band, my personal savings  allowance goes down to £500, and I end up paying 40% tax on £500?

Have you made any Gift Aid donations or relief at source pension contributions which would increase your basic rate band?

I had already adjusted for that but yes

How?  They have no impact on the amount of taxable income.

I assume OP used the phrase 'taxable income' but meant 'adjusted net income'. 

Pat38493

Dazed_and_C0nfused said:

Pat38493 said:

Dazed_and_C0nfused said:

Pat38493 said:

I will have £46270 of taxable income from 2 income streams in the year (number altered for ease of question but close to reality).

I will also have about £1K of savings interest.

How much can I take out from my pension drawdown pot (TFC already taken) if I want to avoid the personal savings allowance being reduced to £500?  Is it £4K or £3K?  

Point is I am not sure whether if I take 4K out from my pension, this makes my taxable earnings £50270, but then I have to add the £1K savings interest so now I trigger the 40% tax band, my personal savings  allowance goes down to £500, and I end up paying 40% tax on £500?

Have you made any Gift Aid donations or relief at source pension contributions which would increase your basic rate band?

I had already adjusted for that but yes

How?  They have no impact on the amount of taxable income.

Maybe I am not using the right terminology, but I already excluded pension contributions from the £46270 that I mentioned in the OP.  I am getting the information from my payslips for example that the amount that will be taxed, whatever the correct terminology is, is £46270.  I contributed £22K to the pension in this tax year including both my contributions and employer contributions, but this is not included in the number.

In any case, let's say I realised I was going to exceed the £50270 by £5.  Are you saying I could just make a gift aid contribution of £5 to any charity by 6th April and report it to HMRC and this would avoid the issue?