Interest Tax Allowance

hugo15

I'm on the cusp of 40% tax so just wanting to check I have the right understanding of the interest income tax free allowance.

My understanding is that the point that it tips from £1000 down to £500 is £50270, so I need to get my taxable income below this amount (through pension contributions)

Have I got the right end of the stick?

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6660063/interest-tax-allowance

Not really no.

ISA's are tax free, normal non ISA interest is taxable, and from what you have posted, you will be taxed on it. But there is a 0% tax rate that will be relevant (known as the personal Savings Allowance).

Reducing your income isn't necessary though, you could increase your basic rate band instead, by Gift Aid donations or "relief at source" pension contributions. They have the same benefit in this situation as reducing your income does.

On-the-coast

no, not quite right… that £1000 is also taxable income.

hugo15

To add some clarity to my post. My taxable income includes both my salary and interest income. I've maxed out my ISAs for this year.

From what I understand being just over the higher rate tax threshold the tax free allowance for interest income will drop from £1000 to £500 and therefore I'll pay more tax. I can make payment into a personal pension to get me into the 20% tax bracket to retain the higher allowance.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81926705#Comment_81926705

There is no "tax free allowance" for interest.

But you can increase the amount of taxable interest taxed at 0% from £500 to £1,000 by making additional pension contributions.

Assuming you are using the relief at source method then as an example £1,200 from you becomes £1,500 within the pension, with the basic rate tax relief added.

As a result your basic rate band is then extended from £37,700 to £39,200.

If you get your sum rights this can be a tax efficient option.

LITRG

Hi OP. You may find our guidance on the personal savings allowance helpful.

Personal savings allowance | Low Incomes Tax Reform Group

Hope this helps!