Tax on savings interest - higher rate tax payer

CrunchyNutCornflakes

Hi

I've been using regular savers the last couple of years (along with ISAs), but now I've crossed the tax threshold and I'm a higher tax rate payer I'm wondering if this is still the best approach.

What I'm not sure about is if pension contributions can be used to reduce tax on savings interest in the same way as with income tax.

For example, if I have

PAYE earnings of £51,000

Taxable savings interest of £2000

Pension contributions > £3000

...then would I be paying 20% or 40% tax on the savings interest over £500?

El_Torro

Yes, you can avoid being a 40% tax payer by paying enough into your pension. Plenty of people do this.

In the scenario you mention you'll still have your £1,000 tax free allowance on your savings and the remaining £1,000 will be taxed at 20%. Assuming you don't live in Scotland.

CrunchyNutCornflakes

https://forums.moneysavingexpert.com/discussion/comment/82136534#Comment_82136534

Perfect, thank you, then I'll continue as I am

gravel_2

https://forums.moneysavingexpert.com/discussion/comment/82136534#Comment_82136534

The rUK tax rates apply to tax on interest in Scotland.

poolboy

Yes same numbers here, the true tax rate is higher as your allowances taper down, interest and divs.

Just manage your taxable income to say 49k to avoid being caught out. Nice position to be in I suppose, my regular savers pay well.

Newbie_John

Solution described above, just double checking that you've been using your ISA in full by adding £20k each year?

I've stopped using regular savers mostly for tax related issues and a hassle when you can get better returns using S&S ISA - and thats important for next year as cash ISAs limits will drop next year from £20k to £12k.

InvesterJones

https://forums.moneysavingexpert.com/discussion/comment/82142220#Comment_82142220

The use cases for savings compared to stocks and shares are VERY different. Saying you can get better returns without mentioning the risk and time frame is not telling the full story - if you need savings then S&S is not appropriate (unless you just stick it in a short term money market fund.. whose rates are below savings and then there are fees on top!)

CrunchyNutCornflakes

https://forums.moneysavingexpert.com/discussion/comment/82142220#Comment_82142220

I added £20k to ISAs the last two years, into a mix of S&S and fixed cash ISAs. I won't have so much to lock away this year but currently have £300/month going into a S&S ISA