Tax on savings

[WheelyCote]

Im a bit confused and wonder if someone knows and can clarify for me, if I potentialy will pay more tax on savings interest.
Im trying to figure out what is worth doing.

I currently work full time but I also work extra shifts. I also have a couple of 5% interest savings accounts (nothing massive in them).

Last month I worked quite a few extra shifts but unfortunately didnt realise that the pay that month took me into the 40% tax bracket. Im now watching what shifts I do so dont make this same mistake again.

I do a bit of faffing with the interest savings account. Basically Im paying off debt. I pay a bit more than the minimum payments each month (0% Credit card) and then deposit money into two savings accounts with 5% interest. The aim is that at the end of the term I will get back about a 100 pound on each account. An extra 200 pounds ish towards the debt. I do topcashback and a few other bits and pieces to help too.

Because Im at the 40% PAYE tax threshold with my pay does that mean that the 200 pound ish earned from savings interest could potentially tip me over into the higher tax bracket?

Hope this makes sense and Im aware i might be missing something obvious and being a bit dim lol

If in the higher rate tax bracket, you can earn £500 tax free using your personal savings allowance.

Thanks for reply Alarae this is the bit that confuses me. Is the personal saving allowance different to the personal tax allowance?? i.e is the personal saving allowance just on savings interest income?

Also if thats the case does that mean if I keep my tax at BR do i have scope to earn more in savings interest income?

There probably really daft questions but just want to be sure I understand.

Savings allowance is different to pay so no worries there, you can earn £1000 in interest tax free a year or £500 if you're higher rate tax payer. That's the amount of interest not the amount is savings so you'd have to be doing pretty well to exceed that.

Will you be a higher rate tax payer this year? If you don't get to the threshold at the end of the year you'll be refunded any extra tax you paid on a one off month.

I really don't mean this to be rude but if you're earning almost £50k a year you should consider independent financial advice. Getting your finances right could make a huge difference in the long run and they can explain everything to you.

Cannylad thank you and not rude at all :)

Pay more into your employer pension, so that you pay less tax ?

Bluebells thats an interesting thought.
When it comes time to claim the pension....do we pay tax on it?
Again its probably a daft question

You need to check how much you put into your employer pension & how much your employer contributes per month
I believe that in future you can take a tax free lump sum. I believe the remaining pension is taxed. Unless you are a really high earner, I guess most people don't pay 40% tax on their pension

While as a higher rate tax payer you still get a, reduced, savings allowance, I think what you are asking OP is whether the interest even though covered by the savings allowance can push you into higher rate.
See below which I've copied from MSE.

Can my savings within the personal savings allowance push me into a higher income tax band?

Simply, yes. However, the tricky question comes if your non-savings income, which would generally be income from work (whether employed or self-employed), is below the higher-rate threshold but your savings income would take you above it.

So do you get the £1,000 for basic-rate taxpayers or do you get the £500 for higher-rate taxpayers?

To work this out you first must add up your income from work and income from earned savings interest to get your total income. If that total income puts you in the higher-rate band (starts at £50,000 in 2019/20) then you are a higher-rate taxpayer and you only get the £500 of personal savings allowance (similarly for those at the additional-rate threshold – you wouldn't get the personal savings allowance at all).

Let's do an example...

The higher rate of tax starts on income above £50,000 (in the 2019/20 tax year). You earn £49,999 plus have £1,000 in savings interest. As your total income including interest is above the higher-rate threshold you'll only get the £500 personal savings allowance. So, £500 of your interest would be tax-free, while the remaining £500 would be taxed at the higher rate.

For a more detailed exploration of this, seeMartin's blogon how the personal savings allowance means some will be better off earning LESS interest.

Also, the fact that you have been pushed I to 40% PAYE this month doesn't mean you will end up there for the year - it is your total annual income for the tax year (year ending 5tg April) which matters. So with your extra shifts you may well stay as a basic rate tax payer.

I wouldnt worry about it at that level. It almost certainly wont get picked up and its not worth faffing with self assessment.