Breaking the Basic - Higher Rate Tax Barrier with interest?

[tjm397]

I don't yet qualify as a higher rate tax payer but my regular income is not far short by ~£1000.

I do however have a number of saving accounts that are due to pay interest which will take me over the basic tax limit for the year and put me into the higher tax bracket.

I have already used my full ISA allowance for the year to offshift these savings.

Will i have to declare the sum over the basic limit and payer the extra 20% tax on that?

[Instinctive]

Yes, you have to declare all interest and dividends income so that the tax office can work out how much amount has entered the higher rate tax band.

Ramnik
ramnikrp@hotmail.com

[bob.fraser@towrylaw.]

Don't forget that there are more tax free savings scheme than just ISAs which you can use to avoid this problem. If you are happy to save in non-deposit investments, then you can also use plans which are chargeable to capital gains tax rather than income tax. Everyone has an annual CGT allowance of £8,200 which few people exploit. This would avoid your problem.

Bob Fraser, MBA, MA
Associate Investment Director, Rensburg plc
Fellow, Personal Finance Society
tel: +44 (0)2890321002
mobile 07709430958

[tjm397]

Thanks very much for the advice.

[ian.wright@beechams.]

If you are married and don't already have joint accounts or don't mind tranferring monies into your wife's name and your wife is not a higher rate tax payer then you can use her tax bands to avoid higher rate tax.