Extending basic rate income tax band

Dazed_and_C0nfused

RG2015 said:

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.

If your Personal Allowance is all allocated to the pension income that leaves £37,130 to be taxed at basic rate.

Then the interest would be taxed like this, 
£500 x 0% (savings nil rate band within the basic rate band)
£70 x 20% (savings basic rate within the basic rate band)
£1,430 x 40% (savings higher rate)

Total tax payable is £8,012 (7,426 + 0 + 14 + 286).

What do you get the total tax to be if you opt for £570 of your Personal Allowance to be used against the interest 🤔.  Clue, it is less than £8,012.

Not sure you need to tell HMRC anything, isn't this a hypothetical question?

RG2015

I think I get it, but I may just need to work it through.

I do question you earlier assertion that it was nothing to do with the effect of the PSA moving from £1,000 to £500 for 40% tax payers.

Dazed_and_C0nfused

RG2015 said:

I think I get it, but I may just need to work it through.

I do question you earlier assertion that it was nothing to do with the effect of the PSA moving from £1,000 to £500 for 40% tax payers.

In the scenario you outlined the £1,000 was never a factor. 

It was always going to be just £500 taxed at 0% irrespective of how the Personal Allowance is allocated.

RG2015

Dazed_and_C0nfused said:

RG2015 said:

I think I get it, but I may just need to work it through.

I do question you earlier assertion that it was nothing to do with the effect of the PSA moving from £1,000 to £500 for 40% tax payers.

In the scenario you outlined the £1,000 was never a factor. 

It was always going to be just £500 taxed at 0% irrespective of how the Personal Allowance is allocated.

Agreed. I just meant that I had not factored it in within my thinking. It does however raise another point. 

In my hypothetical scenario, if I factored in enough gift aid (£1,430 gross), would this bring the first £1,000 interest into the 0% tax rate?

RG2015

I have just recalculated my projection for next year and my taxable income comes to £37,900.

Is it possible that HMRC will factor in any 40% tax into my PAYE code for 2026/2027?

Is it worthwhile pre-empting this by informing them of my expected gift aid donations? 

Dazed_and_C0nfused

RG2015 said:

I have just recalculated my projection for next year and my taxable income comes to £37,900.

Is it possible that HMRC will factor in any 40% tax into my PAYE code for 2026/2027?

Is it worthwhile pre-empting this by informing them of my expected gift aid contributions? 

It seems an utter waste of yours and their time.

Even if you moved to Scotland it's almost certainly going to be irrelevant.

No reason to think 40% tax will be a factor of any sort, even if you had a large underpayment to be collected or were paying back the Winter Fuel Payment.

RG2015

Many thanks D&C. I have a bit of a mental block when it comes to HMRC.

I find much of what they do illogical and often hard to fathom.

Therefore I very much appreciate your sage advice and that of others on this site.

Dazed_and_C0nfused

RG2015 said:

Many thanks D&C. I have a bit of a mental block when it comes to HMRC.

I find much of what they do illogical and often hard to fathom.

Therefore I very much appreciate your sage advice and that of others on this site.

If it were me I would be far more concerned about why your income has taken such a steep nose dive.  But there may well be a good reason for that.

RG2015

Dazed_and_C0nfused said:

RG2015 said:

Many thanks D&C. I have a bit of a mental block when it comes to HMRC.

I find much of what they do illogical and often hard to fathom.

Therefore I very much appreciate your sage advice and that of others on this site.

If it were me I would be far more concerned about why your income has taken such a steep nose dive.  But there may well be a good reason for that.

Apologies, I have inadvertently given confusing figures.

My spreadsheet shows a figure of £37,900 after deducting my £12,570 personal allowance and I just quoted this figure.

I thought that the term for net income after deducting the personal allowance was taxable income.

I will know better next time.

molerat

RG2015 said:

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.

So lifts your 40% threshold by £3600