Personal Savings Allowance 16/17

Pensions count.

A person who is taking income from a personal pension can do things like taking three times as much in one year then nothing for two years to get two years of the savings allowance. Cap the three times at basic rate income tax only, perhaps, floor in all three years at the income tax personal allowance. And do VCT buying to eliminate the income tax in the year when taking the three times income.

If you're working part time that's doable.

If working full time the minimum wage prevents you from cutting your income to the personal allowance. It's illegal for an employer to pay less than minimum wage and that includes via salary sacrifice.

Benefits in kind can also be an issue.

Salary sacrifice is available to younger people, yes. The main catch is that salary sacrifice is usually into a pension and the pension pot isn't available until age 55 so it's more appropriate for those fairly close to that age to cut their pay to low levels.

Younger people can buy some VCTs and get 30% income tax relief capped at income actually paid then five years later sell those VCT shares and buy something else or wait six months (I forget the exact gap required) and do it again. 30% once every five years for longer than an older person can do it and often some tax exempt dividend income as well. That's a lot of income tax saving potential if VCTs are suitable as an investment and if you have enough money to defer income for five years which is effectively what you're doing. Why pay income tax when instead you can save aggressively until you have accumulated enough money to stop paying it? Older people can do this as well but they have fewer years to live to do it.

Older people who are 55 or older can do things like paying £2880 into a pension, having basic rate tax added (even if not paying any income tax) then taking out the gross £3,600. 25% tax free lump sum and the remaining 7% taxable income. If taxed at basic rate that's £900 + £2,700 *  0.8 = £3,060 out a net gain of £180. Or if not actually paying tax because it's within the personal allowance, a net gain of £720. Can be done every year until reaching age 75. As soon as any taxable part of any pension is taken including this the annual allowance for pension contributions is reduced to £10,000. £3,600 is the amount anyone can pay in even if it's above earned income, if earned income is higher that can be paid in instead.

What is "Savings Starting Rate Band"?

Isn't this recycling subject to anti-avoidance rules, albeit that they appear not to be currently enforced?

In 2015-16

Basically if your income from non-savings (employment, pensions, benefits, S&S investments) plus £5k was less than £15600 then you could register for tax free interest.

If you income from non- savings plus income from savings was more than £15600 but your income from non-savings is less than £15600 then you could claim some or all of the tax taken for your savings income

www.gov.uk/…est-on-savings/tax-free-savings

With examples

www.thisismoney.co.uk/money/news/article-2978131

For 2016-17 this increases to £16k as the Personal Allowance is increasing. On top of this everyone on basic rate doesnt pay tax on first £1000 of interest from savings, £500 for higher rate. As savings interest will be paid gross you dont need to register anymore

Interest will be paid gross so it will be assessed either through tax return or from info provided by employers (real time) and financial institutions (periodic returns) and I assume collected through tax code adjustment the following year (or direct payment/refund). Been quite a lot of noise about HMRC sending out tax codes estimating peoples interest which may lead to too much tax being taken if income/interest returns have fallen. Everyone will have access to their tax info through HMRC site and can amend it online (Everyone should check this for accuracy, it also includes NI contributions towards state pensions - Ive just found HMRC havent counted a full year)

Sign up for HMRC Personal Gateway here www.tax.service.gov.uk/coafe/government-gateway/register?accountType=individual&continue=%2Fpersonal-account%2Fdo-uplift. You need a mobile for security (i think), NI number and some financial details (eg recent NI & tax paid so they can verify you)

Sure pikestaff or james can correct/improve on this