Quick 40% tax question

[MrRobin]

It shouldn't affect the position of the upper rate threshold at all (except that it has gone up a wee bit, as it does every year) since the income that used to be taxed at 10% is now taxed at 20%

In other words, the 20% (used to be 22%) band has got 'wider' to fill the gap the 10% has left, rather than the upper rate threshold dropping.

[Ruprect]

But what about the abolition of the 10% band. Won't that move the threshold around a bit?

Good question! one for the accountants methinks

[malvolio]

But what about the abolition of the 10% band. Won't that move the threshold around a bit?

[gadgetman]

Thanks for the replies, all clear now.

[ASB]

Thanks, just as well I asked!

Can you elaborate on where 22.5% comes from? I'd assumed I pay the difference between basic rate and 40%, hence my guess at 18%.

http://www.hmrc.gov.uk/manuals/saimmanual/SAIM1080.htm
http://www.hmrc.gov.uk/rates/it.htm


Actually the higher savings rate is 32.5% but you get the 10% credit

It works out at 40% being paid overall in the mix between normal rate CT and the higher rate savings tax paid.

[MrRobin]

Paying tax on dividend income
If you pay tax at or below the basic rate
You have no tax to pay on your dividend income because the tax liability is 10 per cent - the same amount as the tax credit - as shown in the tables.
If you pay tax at the higher rate
You pay a total of 32.5% tax on dividend income that falls above the basic rate Income Tax limit (£34,600 for the 2007-2008 tax year). But because the first 10 per cent of the tax due on your dividend income is already covered by the tax credit, in practice you owe only 22.5 per cent.

Linky

[gadgetman]

Thanks, just as well I asked!

Can you elaborate on where 22.5% comes from? I'd assumed I pay the difference between basic rate and 40%, hence my guess at 18%.

[MrRobin]

Quick 40% tax answer

Your threshold calculation is correct, but the extra amount payable is 22.5%, not 18%

[gadgetman]

Just got my PAYE return and I’m trying to estimate my personal tax liability for 2006/07 i.e. the additional tax in the 40% band.

From previous posts here I get the threshold at which the 40% rate starts for net dividends as:

(40% threshold + personal tax allowance – PAYE) * 0.9 which comes out at:

(34600 + 5225 – 10750 ) * 0.9 = £26,167.50

Therefore any net dividends above this figure are subject to 18% tax. Is this correct?