Extending basic rate income tax band

RG2015

I am receiving the state pension and a company pension. Other than these my only income is savings interest. I also have marriage tax allowance from my wife and I make regular gift aid charitable donations.

My total income will be the sum of my pensions and my interest received.  If this exceeds £50,270, I will incur tax at 40% on any income above this amount.

However as I understand it, any gift aid charitable donations can be grossed up by 25% and will extend my basic rate tax band.

I also understand that marriage tax allowance will not affect this and that the £1,000 PSA will be included as taxable income.

Have I got this all correct?

Dazed_and_C0nfused

RG2015 said:

I am receiving the state pension and a company pension. Other than these my only income is savings interest. I also have marriage tax allowance from my wife and I make regular gift aid charitable donations.

My total income will be the sum of my pensions and my interest received.  If this exceeds £50,270, I will incur tax at 40% on any income above this amount.

However as I understand it, any gift aid charitable donations can be grossed up by 25% and will extend my basic rate tax band.

I also understand that marriage tax allowance will not affect this and that the £1,000 PSA will be included as taxable income.

Have I got this all correct?

The bit highlighted in bold isn't necessarily true, it depends on the exact amounts of each income source.

You ignore Marriage Allowance when determining if you are a higher rate payer.

You include all taxable savings interest, even if it is taxed at 0%.

The gross Gift Aid donations will increase your basic rate band (assuming you have notified HMRC of the Gift Aid payments).

So a Gift Aid donation of £1,500 (gross) will increase your basic rate band from £37,700 to £39,200.

RG2015

Many thanks D&C

As regards my income, would the following be correct.

Company pension, £36,000
State pension, £11,000
Non ISA interest, £2,000
SIPP UFPLS, £2,700 (gross £3,600 but excluding 25% tax free)
Total, £51,700

Therefore £430 would be taxed at 40%, but a net gift aid charitable donation of £344 reported to HMRC would avoid this.

Dazed_and_C0nfused

RG2015 said:

Many thanks D&C

As regards my income, would the following be correct.

Company pension, £36,000
State pension, £11,000
Non ISA interest, £2,000
SIPP UFPLS, £2,700 (gross £3,600 but excluding 25% tax free)
Total, £51,700

Therefore £430 would be taxed at 40%, but a net gift aid charitable donation of £344 reported to HMRC would avoid this.

Surely it's £1,430 that would be taxed at 40% 🤔

Although you could probably get HMRC to drop that to £930 if you asked for some of your Personal Allowance to be allocated to the interest.

RG2015

Dazed_and_C0nfused said:

RG2015 said:

Many thanks D&C

As regards my income, would the following be correct.

Company pension, £36,000
State pension, £11,000
Non ISA interest, £2,000
SIPP UFPLS, £2,700 (gross £3,600 but excluding 25% tax free)
Total, £51,700

Therefore £430 would be taxed at 40%, but a net gift aid charitable donation of £344 reported to HMRC would avoid this.

Surely it's £1,430 that would be taxed at 40% 🤔

Although you could probably get HMRC to drop that to £930 if you asked for some of your Personal Allowance to be allocated to the interest.

Thanks, and yes, my arithmetic failed me! Hence I am looking at a net charity donation of £1,144 (gross £1,430) to avoid this.

Could you further explain the potential reduction to £930?  

Dazed_and_C0nfused

RG2015 said:

Dazed_and_C0nfused said:

RG2015 said:

Many thanks D&C

As regards my income, would the following be correct.

Company pension, £36,000
State pension, £11,000
Non ISA interest, £2,000
SIPP UFPLS, £2,700 (gross £3,600 but excluding 25% tax free)
Total, £51,700

Therefore £430 would be taxed at 40%, but a net gift aid charitable donation of £344 reported to HMRC would avoid this.

Surely it's £1,430 that would be taxed at 40% 🤔

Although you could probably get HMRC to drop that to £930 if you asked for some of your Personal Allowance to be allocated to the interest.

Thanks, and yes, my arithmetic failed me! Hence I am looking at a net charity donation of £1,144 (gross £1,430) to avoid this.

Could you further explain the potential reduction to £930?  

Ignoring Gift Aid, how much income would be taxed at 40% if you allocated £570 of your Personal Allowance to the interest?

RG2015

Ok thanks, I hadn't considered the effect of the PSA moving from £1,000 to £500 for 40% tax payers.

You said that I could probably get HMRC to drop it to £930. Is there a scenario where they may not agree to such a request? 

Dazed_and_C0nfused

RG2015 said:

Ok thanks, I hadn't considered the effect of the PSA moving from £1,000 to £500 for 40% tax payers.

You said that I could probably get HMRC to drop it to £930. Is there a scenario where they may not agree to such a request? 

No, it's in the legislation.  But not very well understood by front line staff.

But it has nothing whatsoever to do with moving from £500 to £1,000 savings nil rate.

If you allocate £570 of your Personal Allowance to the interest how much of your pension income is taxed at basic rate?

If you didn't do that how much is taxed at basic rate and where would the £500 taxed at 0% fall?

NB.  Once the Personal Allowance is allocated any remaining income is taxed in a strict order, non savings non dividend income then savings income then dividends.

molerat

SIPP UFPLS, £2,700 (gross £3,600 but excluding 25% tax free)

Do you put £2880 / £3600 into the SIPP each year ?

RG2015

Dazed_and_C0nfused said:

RG2015 said:

Ok thanks, I hadn't considered the effect of the PSA moving from £1,000 to £500 for 40% tax payers.

You said that I could probably get HMRC to drop it to £930. Is there a scenario where they may not agree to such a request? 

No, it's in the legislation.  But not very well understood by front line staff.

But it has nothing whatsoever to do with moving from £500 to £1,000 savings nil rate.

If you allocate £570 of your Personal Allowance to the interest how much of your pension income is taxed at basic rate?

If you didn't do that how much is taxed at basic rate and where would the £500 taxed at 0% fall?

NB.  Once the Personal Allowance is allocated any remaining income is taxed in a strict order, non savings non dividend income then savings income then dividends.

Sorry, I am still a bit confused as to what I would need to say to HMRC and where the £570 comes from.

RG2015

molerat said:

SIPP UFPLS, £2,700 (gross £3,600 but excluding 25% tax free)

Do you put £2880 / £3600 into the SIPP each year ?

Yes, I have done this for the last 3 years.