I only just fall into the higher-rate tax band, and so receive a £500 personal savings allowance, but I have substantial interest earnings so would benefit greatly from the ful l £1,00 0 allowance. Could I make additional pension contributions via salary sacrifice to bring myself down to basic-rate taxpayer status, and therefore be eligible for a £1,000 personal savings allowance? Also, can savings income itself push you into the higher-rate tax bracket and reduce your allowance to £500? SW, via email
The boundaries between tax brackets and the implications involved in crossing them are complicated, even more so now that the personal savings allowance has been introduced.
The hard cut-off, which distinguishes whether an individual receives a £500 allowance or a £1,000 allowance, means that many hovering perilously close to the boundary are keen to make sure they don't breach it.
Making additional contributions to a company pension via salary sacrifice is one way to go about it.
Tina Riches, national tax partner at accountancy firm Smith amp; Williamson, explained: "The restrictions to the level of personal savings allowance are based on 'adjusted net income', which is taxable income, before taking into account personal allowances and certain tax reliefs. The main reliefs that can be deducted include trading losses, charitable donations made under Gift Aid and pension contributions."
In other words, a pension contribution made via salary sacrifice is never included as taxable income, so it doesn't count towards the personal savings allowance. That means you could keep yourself in the basic-rate bracket by increasing your salary sacrifice pension contributions.