Maths Help

looking at the OP.. if the intreast rate is 5.03% and you're getting tax at 20%, giving you an allowance of £1000. You need to have £19880.71 in the account for the whole year to get just under £1000.

Thou intreast is considered as part of your personal allowance so be careful if you are on 49K a year as it may bump you into the next tax bracket and then you will be tax on £500 pounds of it it.

with my own personal savings (5.15%) and isa accounts (2.15%) there's no amount where I'm not better of paying tax on the intreast on the personal savings than placing it in an ISA.
 
The technical name for what the OP is talking about called ‘Grossing Up’.

With that known they can give it a google, but to save time here is the formula:
  • Gross pay = net pay / (1 - tax rate)
 
5.03% = 80% of the original amount

1% of the original amount =5.03/80 =0.062875

100% of the original amount =0.062875 x 100 =6.2875

And to double check,
20% of 6.2875 =1.2575,
so 80% of 6.2875 = 6.2875-1.2575 (100%-20%) =5.03 which is the original figure.
 
Last edited:
Belly said:
Yes thanks I realise that ISAs are tax free, but.....

If I were to put £100 in an ISA at 5% I might be better putting the £100 in a taxed account at 7% (5.6% net).
Click to expand...
I think you are over-simplifying it a bit. Keep in mind that ISA funds have annual deposit limits so if you don't use your full allowance in a given tax year it is lost forever. So whilst savings might pay more net in the short term, you might find yourself in a situation where you regret not having put the money in the ISA when it comes to future years interest. In future you might pay more tax on savings interest potentially if you become a high earner and have a large amount of interest payments (hasn't been an issue for ages because rates were so low).

If all you care about is short term, e.g. perhaps you're intending to clear out all your savings for a house purchase in the next couple of years (maybe a bad example if you are eligible for a lifetime ISA or whatever those things are that get a massive top up) then yes a 7% account should be better than 5.03% ISA but do consider your longer-term strategy as well.
 
Last edited:
You must log in or register to reply here.
Back
Top Bottom