Tax on savings interest

woodpecker

Hi, I've just had an email from HMRC regarding tax owed for the last tax year. They have taxed the interest I made on savings at 40%, and only given me an allowance of £500 interest that can be earned before tax.
My salary is below £50k, but I have BUPA through work, which takes me close to the limit, and I earned about £1900 in interest on savings.
Has the interest earned been taxed at 40% because all of the above takes me into the higher rate tax bracket? and I only get £500 allowance for the same reason?
Any advice would be appreciated.

El_Torro

Salary, taxable benefits (private healthcare through work being an example of taxable benefits) and savings interest all count towards your taxable income. So if these three combined bring you into the 40% tax bracket that'll be why HMRC are taxing you this way. 

Do you pay into a pension? Can you pay more in to get you back into the 20% tax bracket? 

woodpecker

Thanks. I do pay into a work pension using salary sacrifice, but I am already above the £2k p.a. cap now.
I have less savings than last year, so I will look at how much interest I'm likely to earn in this tax year and maybe move some cash accordingly.

MACKEM99

woodpecker said:

Thanks. I do pay into a work pension using salary sacrifice, but I am already above the £2k p.a. cap now.
I have less savings than last year, so I will look at how much interest I'm likely to earn in this tax year and maybe move some cash accordingly.

Make sure you use up your ISA allowance if not already done so.  Some give instant or easy access.

Grumpy_chap

woodpecker said:

Thanks. I do pay into a work pension using salary sacrifice, but I am already above the £2k p.a. cap now.

The £2k cap to NI relief introduced at the Budget is not yet implemented.
Tax relief remains on SS pension contributions with the limits unchanged and no change proposed in the latest Budget.

Albermarle

woodpecker said:

Thanks. I do pay into a work pension using salary sacrifice, but I am already above the £2k p.a. cap now.
I have less savings than last year, so I will look at how much interest I'm likely to earn in this tax year and maybe move some cash accordingly.

The cap is not due to come in until 2029. In any case it is not a cap on how much you can salary sacrifice, only on how much NI you can save. The normal tax relief is unaffected.

DRS1

Of course a pension contribution this tax year will only help you for this tax year not last year.  Have you thought about a gift aid charitable contribution?  See
Claiming gift aid tax relief on previous tax year (higher rate PAYE) — MoneySavingExpert Forum