Share this content
0
633

Savings Allowance

Savings Allowance

Didn't find your answer?

Search AccountingWEB

Please bear with me on this query. For 2016/17 the savings allowance is £1,000 for standard rate taxpayers and £500 for higher rate taxpayers. Higher rate for this purpose seems to be where total (taxable) income is £43,001 or above even though none of the income may be taxed at 40% due to say the dividend allowance. This means that someone with a total income of £43,001 will pay £100.20 more than someone earning £43,000 (a marginal tax rate on the £1 of 10,000%).

Although I've doctored the figures slightly from a client's tax return, in essence the figures are actual. Is my software correct or is there something I've overlooked?

 

 

 

Replies

Please login or register to join the discussion.

04th Dec 2017 10:36

Correct to the best of my understanding. As you say the person may not pay any 40% tax due to the dividend allowance or the savings allowance itself. So the use of the word allowance in both cases is quite misleading.

Thanks (0)
04th Dec 2017 10:43

Sadly not. Apart from it's 10020%

That's the problem with these cliff-edge reliefs.

Thanks (0)
avatar
By rhino83
04th Dec 2017 11:40

It's a similar prospect for the transfer of tax allowance between spouses.

Just £1 over the basic rate band and you could have an extra £230 tax to pay.

Thanks (0)
avatar
04th Dec 2017 12:38

I'm afraid that you've got it right. FA2016 emphasised the point that when working out the status vis-a-vis higher rate, the DA should be treated as though it didn't exist.

As for the PSA itself, HMRC did once accept the following implementation - that the PSA should be regarded as an up-to-£200 rebate of savings income tax available to basic or higher rate tax-payers. That would have met the legislative intent, and would have eliminated entirely the discontinuity that produces that crazy incremental rate of up to 10,020% - and been a lot easier to understand. A fortnight later they switched to the current, foolish, implementation.

Thanks (0)
04th Dec 2017 12:22

The simple answer is, in your extreme example, to make a donation to charity of £1 under gift aid and carry it back to 2016/17.

Thanks (2)
avatar
04th Dec 2017 12:26

In essence I think you are correct - there is a cliff edge.

Thanks (0)
Share this content