Trying to Understand the 22% Tax on Savings.

Shylock_249

I’m having a blind spot and hopefully someone can help me understand this.

I am a higher rate tax payer simply because of my Bank & Building society Interest (BBSI).

Thus far when submitting my self assessment it hasn’t made any difference in which way the figures are entered, if it hits the 40% level it’s taxed at 40%.

If my pensions paid more than £50271.oo and I received 10k in BBSI I can understand that the whole 10k would be taxed at 42%.

But if my pensions were £45271.oo and my BBSI was 10k (5k above the level) will HMRC calculate that the 5k above the level is BBSI taxed at 42% or pension income charged at 40%.

I made myself a simple Excel spreadsheet calculating rates at 20/40% including and excluding the Winter Fuel Payment but I just can’t seem to come up with a solution to this one.

Any Help Please. TIA

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6669557/trying-to-understand-the-22-tax-on-savings

The whole £10k wouldn't be taxed at 42% though. The first £500 would be taxed at 0% and the remaining £9,500 at 42%.

In your second scenario the first £500 would still be taxed at 0% but that uses £500 of your remaining basic rate band. The next bit of interest, falling in the basic rate band, would be taxed at 22%. And the last bit at 42%.

I think one of the lesser publicised changes is that you cannot allocate the Personal Allowance how you wish from April 2027. See section 7 here,

https://www.gov.uk/government/publications/changes-to-tax-rates-for-property-savings-dividend-income/changes-to-tax-rates-for-property-savings-dividend-income

Shylock_249

Thank you Dazed_and_ Confused (me and the wife went to see Led Zeppelin at Earls Court in 1975!)

I've since found this, which also helps.