Interest on non ISA savings

chinadog1

Although my salary is slightly into the 40% tax bracket at £53k, my workplace salary sacrifice lowers the salary to about £46k. Does this mean that any non ISA savings interest I earn is taxed at 40% or 20%. I try to keep the non ISA interest to below £1000 per annum by using ISAs.

I don't have any other earnings apart from salary and savings interest.

Thanks

Isthisforreal99

If your taxable pay is £46k and your non ISA interest is under £1k then you will not pay any tax on your non ISA savings interest as you are enttitled to the £1000 starter rate at 0%.

Newbie_John

Yes, but you are approaching danger zone.

Interests are seen as income so £46k+£1000 = ,£47k so no tax up to £1000 of interests.

If your taxable salary was £49500, then adding £1000 interests would take you over threshold as your salary would then be £50500 meaning £500 interests free and the 40% tax on remaining £500.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82052354#Comment_82052354

Your maths doesn't make sense.

If total income was £50,500 that is just £230 over the normal higher rate threshold so how would £500 of the income be taxed at 40% 🤔

Newbie_John

https://forums.moneysavingexpert.com/discussion/comment/82052521#Comment_82052521

Things work in this order:

If total income (salary, interests, dividends, ) over threshold then you land in higher tax treatment, tax free allowance drops to £500, and you pay 40% on the rest of interests, doesn't matter that only £1 is over the threshold.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82052580#Comment_82052580

If the taxable salary is £49,500 that means most people will be paying tax on £36,930 of the salary (£49,500 less £12,570 Personal Allowance).

Which leaves £770 of the of the basic rate band still available to be used by the interest.

The first £500 is used by the savings nil rate band (aka Personal Savings Allowance) and then the next £270 is taxed at 20%. Leaving just £230 to be taxed at 40%.

I honestly don't see how £500 is going to be taxed at 40% in this situation.

Newbie_John

https://forums.moneysavingexpert.com/discussion/comment/82052663#Comment_82052663

I think your're right, just got confused with the example I've seen on MSE that used 50270 salary and said "all" taxed at 40%, but as it's 99.9% then I guess they rounded it.

Sure, loss of £500 allowance and taxed accordingly - so some at 20% and some at 40%.

But saying that not sure what will happen in 2027 when the interest rates become 22%, 42%.. but I guess salary comes first, then interests, not the other way round. Anyway, cheers for correction.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82052707#Comment_82052707

There is more info on those changes here. The Personal Allowance will have to be used against any non savings non dividend income first.

https://www.gov.uk/government/publications/changes-to-tax-rates-for-property-savings-dividend-income/changes-to-tax-rates-for-property-savings-dividend-income#what-do-the-changes-to-property-savings-and-dividend-tax-rates-mean-for-employees-and-the-self-employed