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Personal Savings Allowance: more complex than it seems
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Stephen B.
Posted: 27 November 2022 15:22:49(UTC)
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Joined: 26/09/2012(UTC)
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Sara G;249199 wrote:
I just need to ensure I pay enough tax so that the gift aid on my charitable contributions is not impacted. (For those in a similar position, you need to ensure your donations are not more than 4x the amount of income tax + CGT paid; tax on savings doesn't count.)


I don't understand the last bit, as far as I know gift aid can be any tax so tax on savings will count if you have enough interest to pay it. Gift aid is a bit of a pain - if you make ad-hoc contributions, e.g. visiting an art gallery, they ask you to tick a box to say that you'll pay enough tax but generally I have no idea if I will or not. Historically I don't think hmrc really cared but they have got more aggressive about it in the last few years.

On your original point there are in fact two different interest allowances. The 1k allowance is something everyone gets, the 5k interest allowance above the personal allowance is a bizarre relic of Gordon Brown's 10% tax band. I keep expecting it to be abolished but probably they're just letting sleeping dogs lie since few people will be in a position to use it - although I am ...
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2 users thanked Stephen B. for this post.
ANDREW FOSTER on 27/11/2022(UTC), Tim D on 27/11/2022(UTC)
kim shillinglaw
Posted: 30 November 2022 00:23:02(UTC)
#6

Joined: 26/04/2021(UTC)
Posts: 306
ANDREW FOSTER;249203 wrote:
Sara G;249183 wrote:
Some new information (to me at least), and a question...

I learned from comments below a Monevator article that the PSA is more complex than I had thought. Specifically, the headline £1K allowance may be greater for those not earning or taking income from a pension over a certain amount. So if your income is less than £5K above the personal income tax allowance, your savings allowance will be £5K less that excess amount, not £1K.



Yes absolutely right, and I am taking full advantage of this, for as long as it lasts.

It's detailed here on the UK gov website

https://www.gov.uk/apply...ree-interest-on-savings

This has made it very attractive to buy the fixed term bonds that are around now, even outside a wrapper, IF you are only just at the personal income tax threshold (which I have made myself)

It's possible to configure ones' income to use

£12K personal allowance
£5K Savings allowance
£11K CGT allowance
£2K Dividend allowance (cough)

Giving £30K tax free income for retirees. Add a bit of ISA income and it's all good. No wonder the country is screwed...




This is so impressive, and making me realise that once I'm retired, or preferably in advance, I need to understand tax more. But I know my limitations and honestly can't quite imagine getting to this, let alone arranging my affairs accordingly, much as I'd like to. I think I need some advice. Do people think that a normal accountant would be able to provide pension tax planning advice? or do you need a tax accountant specialist of some sort? or even a pensions tax accountant specialist of some sort?

sorry for such a basic question and for hijacking SaraG's thread, but I've been PAYE until very recently and never had an accountant, despite being a higher rate tax payer, so its all very new.
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SF100
Posted: 30 November 2022 22:56:16(UTC)
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@Kim

Sadly the cap gains tax free allowance will be whittled down to £3k in couple of years time.
And the tax free dividend allowance £500.
Both per the recent Autumn Statement (the Budget).
The net is closing in on all fronts, so perhaps even less to gain by having an adviser.

I think you'll manage to educate yourself fairly easily & have a decent stab at optimising things, it's not too much to digest, but yeah, a little tricky. The folks on here are a great help.

Simply googling CGT tax rates, or dividend tax rates will get you straight to to UK gov page.

Having a decent ISA sum will help give optionality re income tax, rather than everything in a SIPP.

In case you are likely to have a lot of unwrapped investments when you retire,
you'll note that divi tax rates (once you go above tax free allowance) are less than income tax rates.
so for unwrapped stuff, holding decent divi paying funds might be fruitful,whilst drawing income from your SIPP.

Theres only so much one can do, but I think it's good to have a bit of all the options - optionality.

Edit:
Tax allowances and total taxable income are used up/derived in the following order of precedence:

Income (from salary or pensions or lettings)
Interest from cash savings
Dividends
Capital Gains
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Guest on 01/12/2022(UTC)
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