hazellend
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Post by hazellend on Mar 17, 2017 13:27:07 GMT
Hi all, I am a high earner and my spouse is a low earner 8064 per year. All P2P investments are in Spouses name and this year we will receive about 17k income, luckily with no defaults apart from a small chunk of the shipping crates  If my spouse pays the 8064 net into their SIPP I calculate the 17k should be tax free as follows: 1) 11k personal allowance 2) 5k starting rate for savings 3) 1k Personal savings allowance. There is also dividend income of 12k so will need to pay some tax on that as higher than the 5k allowance. |
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Post by dan1 on Mar 17, 2017 14:03:51 GMT
Hi all, I am a high earner and my spouse is a low earner 8064 per year. All P2P investments are in Spouses name and this year we will receive about 17k income, luckily with no defaults apart from a small chunk of the shipping crates If my spouse pays the 8064 net into their SIPP I calculate the 17k should be tax free as follows: 1) 11k personal allowance 2) 5k starting rate for savings 3) 1k Personal savings allowance. There is also dividend income of 12k so will need to pay some tax on that as higher than the 5k allowance. That is my understanding as well. If you are taxed at the basic rate (you say 'high earner' rather than 'higher rate') you can also apply to transfer 10% of your personal allowance to your spouse, providing them with a total of 18.1k within allowances. If you're a higher rate tax payer you may want to consider additional pension contributions to bring your marginal rate within the basic rate limit. This would effectively gain you another £220 (20% of 10% of 11k). Just to be clear, I am not an accountant!
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hazellend
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Post by hazellend on Mar 17, 2017 14:13:30 GMT
I'm a highest rate payer so can't make any more pension contributions as I've already come up against my tapered pension allowance.
17k tax free is unbelievable. I'd need to earn 38k through blood, sweat and toil to get that net, and it would obliterate my pension annual allowance.
It sure is easier making money from investments than from working.
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fasty
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Post by fasty on Mar 17, 2017 14:35:34 GMT
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hazellend
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Post by hazellend on Mar 17, 2017 14:42:22 GMT
Probably best to take advantage this year before they cotton on and say P2P interest is not included in the savings allowance!
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Post by mrclondon on Mar 17, 2017 14:51:37 GMT
hazellend - I think you are on the right lines, but have perhaps expressed your logic in terms that differ slightly from how the calcs are done which may confuse some people. When you do the self assessment you enter the gross income for everything. So on £8k gross earnt income + £17k p2p the actual gross income is £25k less allowances of £17k (given earnt income is less than personal allowance) , and hence tax will be due on £8k @ 20% = £1600 which you will have to pay to HMRC. You can pay into the SIPP upto the value of the gross earnt income BUT net of basic rate tax, so you would pay in £6400 and the SIPP provider will reclaim the £1600 from HMRC. (I'm not an accountant, but have done self assement forms for 15 plus years, and am currently in a similiar position to what you describe - small earnings, large p2p income. That said I'm below the £5k dividend limit so have no first hand experience of any affect that might have on the wider calcs).
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fasty
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Post by fasty on Mar 17, 2017 14:52:28 GMT
Probably best to take advantage this year before they cotton on and say P2P interest is not included in the savings allowance! Too true. I was nervous enough this year in fear that they would change pension tax relief, because I have been dumping most of my "day-job" income into a pension AVC and almost living off P2P yield!
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Post by dan1 on Mar 17, 2017 14:52:32 GMT
I'm a highest rate payer so can't make any more pension contributions as I've already come up against my tapered pension allowance. 17k tax free is unbelievable. I'd need to earn 38k through blood, sweat and toil to get that net, and it would obliterate my pension annual allowance. It sure is easier making money from investments than from working. Indeed. In the UK, income is taxed quite heavily compared to wealth/investment income. It's not such a bad place to retire early and live off of those investments. Just add up the allowances to see what a couple could draw as an income... Personal allowance £11k (£11.5k next tax year) Savings allowance £1k Starting rate £5k Dividend allowance £5k (reducing to £2k) Capital gains £11.1k Total for a couple = £66.2k (probably equivalent to >£100k on PAYE) And we don't have a wealth tax in the UK.
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stevio
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Post by stevio on Mar 17, 2017 15:23:52 GMT
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ilmoro
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'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on Mar 17, 2017 15:29:31 GMT
I'm a highest rate payer so can't make any more pension contributions as I've already come up against my tapered pension allowance. 17k tax free is unbelievable. I'd need to earn 38k through blood, sweat and toil to get that net, and it would obliterate my pension annual allowance. It sure is easier making money from investments than from working. Indeed. In the UK, income is taxed quite heavily compared to wealth/investment income. It's not such a bad place to retire early and live off of those investments. Just add up the allowances to see what a couple could draw as an income... Personal allowance £11k (£11.5k next tax year) Savings allowance £1k Starting rate £5k Dividend allowance £5k (reducing to £2k) Capital gains £11.1k Total for a couple = £66.2k (probably equivalent to >£100k on PAYE) And we don't have a wealth tax in the UK. And of course the ISA allowance
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stevio
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Post by stevio on Mar 17, 2017 15:33:44 GMT
hazellend - I think you are on the right lines, but have perhaps expressed your logic in terms that differ slightly from how the calcs are done which may confuse some people. When you do the self assessment you enter the gross income for everything. So on £8k gross earnt income + £17k p2p the actual gross income is £25k less allowances of £17k (given earnt income is less than personal allowance) , and hence tax will be due on £8k @ 20% = £1600 which you will have to pay to HMRC. You can pay into the SIPP upto the value of the gross earnt income BUT net of basic rate tax, so you would pay in £6400 and the SIPP provider will reclaim the £1600 from HMRC. (I'm not an accountant, but have done self assement forms for 15 plus years, and am currently in a similiar position to what you describe - small earnings, large p2p income. That said I'm below the £5k dividend limit so have no first hand experience of any affect that might have on the wider calcs). So just take away your earnt income from your personal allowance first And if only P2P income, 17K tax free is possible
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Post by bracknellboy on Mar 17, 2017 15:36:15 GMT
I'm bemused : what is this 5k starting rate.
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stevio
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Post by stevio on Mar 17, 2017 15:37:50 GMT
Hi all, I am a high earner and my spouse is a low earner 8064 per year. All P2P investments are in Spouses name and this year we will receive about 17k income, luckily with no defaults apart from a small chunk of the shipping crates If my spouse pays the 8064 net into their SIPP I calculate the 17k should be tax free as follows: 1) 11k personal allowance 2) 5k starting rate for savings 3) 1k Personal savings allowance. There is also dividend income of 12k so will need to pay some tax on that as higher than the 5k allowance. That is my understanding as well. If you are taxed at the basic rate (you say 'high earner' rather than 'higher rate') you can also apply to transfer 10% of your personal allowance to your spouse, providing them with a total of 18.1k within allowances. If you're a higher rate tax payer you may want to consider additional pension contributions to bring your marginal rate within the basic rate limit. This would effectively gain you another £220 (20% of 10% of 11k). Just to be clear, I am not an accountant! I am still to understand the transfer of personal allowance - if you were in the high rate band, would it not be best to keep your personal allowance so you pay less at the higher rate, rather than save your partner some tax likely to be at the basic rate?
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stevio
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Post by stevio on Mar 17, 2017 15:39:16 GMT
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Post by dan1 on Mar 17, 2017 15:49:16 GMT
That is my understanding as well. If you are taxed at the basic rate (you say 'high earner' rather than 'higher rate') you can also apply to transfer 10% of your personal allowance to your spouse, providing them with a total of 18.1k within allowances. If you're a higher rate tax payer you may want to consider additional pension contributions to bring your marginal rate within the basic rate limit. This would effectively gain you another £220 (20% of 10% of 11k). Just to be clear, I am not an accountant! I am still to understand the transfer of personal allowance - if you were in the high rate band, would it not be best to keep your personal allowance so you pay less at the higher rate, rather than save your partner some tax likely to be at the basic rate? I got that terribly wrong! The zero-rate tax payer can transfer 10% of their allowance (£1.1k) to a spouse if the spouse is a basic rate tax payer. So, the basic rate tax payer will begin paying 20% on earned income above £12.1k thereby reducing their tax bill by £220 if they earn >£12.1k. You can't apply to transfer the allowance if either of you is a higher rate tax payer. Apologies for the confusion!
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