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Handling of £5k savings allowance 20/21

Apply savings allowance or not?

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Client has dividend + salary earnings circa £45k plus £3k of taxed interest (so BR) - Taxfiler's comp says this client is entitled to the 0% starting rate of savings on all £3k. My understanding is that it gets withdrawn after "other earnings" exceed £17,500 so he shouldnt be getting the relief? There is a married couples transfer for the year too, but that doesnt seem to affect it.

Have messaged Taxfiler about it and they say their software follows HMRC calculations and want me to confirm it with HMRC before going back to them.

Before I spend hours on the phone to HMRC, just wanted to check if I'm missing something obvious here? None of our clients have had this level of interest income (so it's not a normal transaction for us), but the HMRC guidance I've found clearly states it gets withdrawn at £17,500.

Maybe it's on HMRC's exception list this year, but I can't find it!

 

Replies (9)

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RLI
By lionofludesch
01st Jul 2021 17:43

It's a savings rate not an allowance - which I believe you acknowledge later.

Knowing how much is salary and how much is dividend would help, given that savings falls in between the two.

Marriage allowance will be £250 as a tax reducer. You're right, it doesn't affect the rates of tax charged. It'll always be £250, provided the tax before MA is at least £250.

I'm guessing salary is relatively low ......

Thanks (2)
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By Wanderer
01st Jul 2021 17:40

terryriley wrote:

Client has dividend + salary earnings circa £45k

......

just wanted to check if I'm missing something obvious here?

Break down the £45k.
Thanks (2)
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By rmillaree
01st Jul 2021 17:44

you havent advised of the salary and divis split - presuming its low salary and high divis from memory this will be fine.

https://www.litrg.org.uk/tax-guides/tax-basics/what-tax-rates-apply-me#t...

Note that dividend income is taxed after savings income. As a result, if you have dividend income it will not affect whether or not you are eligible for the starting rate for savings on your savings income.

Thanks (2)
RLI
By lionofludesch
01st Jul 2021 17:52

[sigh]

The answer is that the savings rate applies if the salary in excess of personal allowance is < £5000.

Marriage Allowance isn't part of personal allowances, so it doesn't count.

I'm guessing, from what you say, that salary is about £12500, leaving up to £3000 of interest chargeable at 0%.

Then you've £2000 dividend allowance and the rest of the dividends at 7½%.

Less £250 Marriage Allowance.

Thanks (3)
RLI
By lionofludesch
01st Jul 2021 18:12

"Client has dividend + salary earnings circa £45k ......"

I might be stating the bleeding obvious here but, to avoid any misunderstanding on anybody's part, dividends aren't earnings.

Thanks (1)
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By terryriley
01st Jul 2021 18:29

Thanks all - very helpful.

Small salary of £9k and £36k of dividends - looks to me the simple answer is that dividends do not form part of the calculation of "other income" that makes up the £17,500.

Taxfiler 1, this accountant 0.

Thanks (0)
Replying to terryriley:
RLI
By lionofludesch
01st Jul 2021 18:50

terryriley wrote:

Thanks all - very helpful.

Small salary of £9k and £36k of dividends - looks to me the simple answer is that dividends do not form part of the calculation of "other income" that makes up the £17,500.

No. They're always the top slice. "Other" means "not dividends and not savings either".

So your interest is actually covered by personal allowance and not the savings rate.

Thanks (0)
Replying to lionofludesch:
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By Not Anonymous
01st Jul 2021 21:01

lionofludesch wrote:

terryriley wrote:

Thanks all - very helpful.

Small salary of £9k and £36k of dividends - looks to me the simple answer is that dividends do not form part of the calculation of "other income" that makes up the £17,500.

No. They're always the top slice. "Other" means "not dividends and not savings either".

So your interest is actually covered by personal allowance and not the savings rate.

Although allocating the unused Personal Allowance of £3,500 against the dividend income will reduce the liability by £262.50.

Which the software should do automatically.

Thanks (3)
Replying to Not Anonymous:
RLI
By lionofludesch
01st Jul 2021 21:20

Not Anonymous wrote:

lionofludesch wrote:

terryriley wrote:

Thanks all - very helpful.

Small salary of £9k and £36k of dividends - looks to me the simple answer is that dividends do not form part of the calculation of "other income" that makes up the £17,500.

No. They're always the top slice. "Other" means "not dividends and not savings either".

So your interest is actually covered by personal allowance and not the savings rate.

Although allocating the unused Personal Allowance of £3,500 against the dividend income will reduce the liability by £262.50.

Which the software should do automatically.

Fair point well made.

Thanks (2)
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