Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

The £1000 tax free personal savings allowance.

Practical Issues
DelianLeague
Lemon Pip
Posts: 99
Joined: September 15th, 2020, 11:44 am
Has thanked: 54 times
Been thanked: 67 times

The £1000 tax free personal savings allowance.

#491320

Postby DelianLeague » April 3rd, 2022, 6:52 pm

Maxing out allowances

I have a question regarding the annual (up to) £1000 tax free personal savings allowance.

At the moment I feel I am doing ok for a 20% tax payer, I have maxed out my ISA for the last few years and I also have such an amount in my trading account that it gives me just under £2000 annually in dividend income as well as holding a few growth stocks.

When it comes to ideas to take advantage of the £1000 annual tax free personal savings allowance, I am completely lost. I have no ideas. So I was astonished when I checked the HMRC web site and read what it included:
Your allowance applies to interest from:
• bank and building society accounts
• savings and credit union accounts
• unit trusts, investment trusts and open-ended investment companies
• peer-to-peer lending
• trust funds
• payment protection insurance (PPI)
• government or company bonds
• life annuity payments
• some life insurance contracts

I thought that this allowance was only for bank account interest and Gov/company bonds.
I honestly had no idea that this included annuity payments or unit trusts/oeic/inv trusts.

Does this mean that if you earn £12570 per year and had £2000 per year in dividend payments from shares and £1000 per year from a unit trust, I would pay zero tax?
Am I reading this correctly? Total: 15,570 with no tax to pay?
P.S. I have a lodger that brings in £5000 per year tax free.
Many thanks, D.L.

mc2fool
Lemon Half
Posts: 7812
Joined: November 4th, 2016, 11:24 am
Has thanked: 7 times
Been thanked: 3017 times

Re: The £1000 tax free personal savings allowance.

#491323

Postby mc2fool » April 3rd, 2022, 7:06 pm

DelianLeague wrote:Your allowance applies to interest from:
• bank and building society accounts
• savings and credit union accounts
• unit trusts, investment trusts and open-ended investment companies
• peer-to-peer lending
• trust funds
• payment protection insurance (PPI)
• government or company bonds
• life annuity payments
• some life insurance contracts

I thought that this allowance was only for bank account interest and Gov/company bonds.
I honestly had no idea that this included annuity payments or unit trusts/oeic/inv trusts.

Does this mean that if you earn £12570 per year and had £2000 per year in dividend payments from shares and £1000 per year from a unit trust, I would pay zero tax?

Only if the payments from the unit trust were interest payments, and not dividend payments. Basically it means the unit trust has to be a bond fund and not a shares fund.

DelianLeague
Lemon Pip
Posts: 99
Joined: September 15th, 2020, 11:44 am
Has thanked: 54 times
Been thanked: 67 times

Re: The £1000 tax free personal savings allowance.

#491329

Postby DelianLeague » April 3rd, 2022, 7:17 pm

mc2fool,

Thanks for clarifying that. I wonder if it is all bond funds or certain ones. I have never seen any info on what bond funds qualify.

Its really not clear on the HMRC site with the wording that is used.

D.L.

mc2fool
Lemon Half
Posts: 7812
Joined: November 4th, 2016, 11:24 am
Has thanked: 7 times
Been thanked: 3017 times

Re: The £1000 tax free personal savings allowance.

#491341

Postby mc2fool » April 3rd, 2022, 7:50 pm

DelianLeague wrote:Thanks for clarifying that. I wonder if it is all bond funds or certain ones. I have never seen any info on what bond funds qualify.

60% bonds/cash has been the rule for as long as I remember. Although there may be other gotchas, so it's always worth checking with the fund directly.

"If more than 60% of the underlying investments within a unit trust are made up of cash or interest-bearing securities (such as UK gilts or government bonds) then any income distributions will be treated as interest payments. If it is less than 60% then all income distributions will be treated as dividends." https://www.onlinemoneyadvisor.co.uk/sa ... nit_trusts

DelianLeague wrote:Does this mean that if you earn £12570 per year and had £2000 per year in dividend payments from shares and £1000 per year from a unit trust, I would pay zero tax?
Am I reading this correctly? Total: 15,570 with no tax to pay?
P.S. I have a lodger that brings in £5000 per year tax free.

£12570 wages/pension plus £2000 dividends plus £5000 interest* plus £1000 self employed turnover = £20570 tax free. I'll take your word on the lodger, never considered it.

* Starting rate for savings, https://www.gov.uk/apply-tax-free-interest-on-savings. Reduced by £1 for each £1 of wages/pension over £12570, which means that if you had, e.g. £12570 of wages and £5000 of interest, then if you earn an extra £1 it'll effectively be taxed at 40% (20% BRT on the £1 extra wage and 20% on the £1 of interest above the now reduced to £4999 allowance.)

Lootman
The full Lemon
Posts: 18681
Joined: November 4th, 2016, 3:58 pm
Has thanked: 628 times
Been thanked: 6563 times

Re: The £1000 tax free personal savings allowance.

#491342

Postby Lootman » April 3rd, 2022, 7:54 pm

mc2fool wrote:
DelianLeague wrote:P.S. I have a lodger that brings in £5000 per year tax free.

I'll take your word on the lodger, never considered it.

Tax free on the basis of the rent-a-room allowance, I would have thought?

DelianLeague
Lemon Pip
Posts: 99
Joined: September 15th, 2020, 11:44 am
Has thanked: 54 times
Been thanked: 67 times

Re: The £1000 tax free personal savings allowance.

#491346

Postby DelianLeague » April 3rd, 2022, 8:10 pm

Yes,

Rent a room scheme allowance for live in landlords is £7500 per year tax free.

kempiejon
Lemon Quarter
Posts: 3488
Joined: November 5th, 2016, 10:30 am
Has thanked: 1 time
Been thanked: 1145 times

Re: The £1000 tax free personal savings allowance.

#491347

Postby kempiejon » April 3rd, 2022, 8:22 pm

If you're after maximising tax free returns don't forget £12300 capital gains allowance on profits from selling shares amd the friendly societies tax exempt savings plans. Though the £25 per month limit is pretty small beer to people filling ISAs and having unsheltered savings too

DelianLeague
Lemon Pip
Posts: 99
Joined: September 15th, 2020, 11:44 am
Has thanked: 54 times
Been thanked: 67 times

Re: The £1000 tax free personal savings allowance.

#491355

Postby DelianLeague » April 3rd, 2022, 8:51 pm

Thank you to all that replied to my post. What a fantastic pool of info.

I have found exactly what I am after due to the info given to me.

A happy D.L.


Return to “Taxes (Practical)”

Who is online

Users browsing this forum: No registered users and 11 guests