Tax question: Does net interest from savings count as income?

zygurat789

If you are retired with a private pension, then, presumeably you will soon be in receipt of your state pension. It may well be that your private and state pensions will be greater than your personal allowance (currently £9490). In which case your interest will be taxable so if you are able to receive it gross now don't forget to make it taxable then or the bogey men from HMRC will inquisition you.

Bogof_Babe

We will have to fill in a R40 this year for OH, as he is taxed on his employment pension, his savings and his part time job, so received none of his personal tax free allowance this year. He doesn't get his state pension yet.

Just looking at the form and not quite understanding some of the sections. Is there an explanatory section that can be downloaded too?

Main query is, he has a good chunk of his savings in an "Investment Bond Portfolio", from which he draws a monthly income. We were given to understand that tax is automatically deducted from these funds before the profits are added to the value of them, and that no tax would need to be declared. Is this correct? I would hate to fall foul of HMRC by omitting to declare relevant information.

Mikeyorks

Bogof_Babe wrote: »

Is there an explanatory section that can be downloaded too?

As a .pdf .... here :-

http://www.hmrc.gov.uk/forms/r40notes.pdf

anamenottaken

Bogof_Babe wrote: »

We will have to fill in a R40 this year for OH, as he is taxed on his employment pension, his savings and his part time job, so received none of his personal tax free allowance this year. He doesn't get his state pension yet.

Just looking at the form and not quite understanding some of the sections. Is there an explanatory section that can be downloaded too?

Main query is, he has a good chunk of his savings in an "Investment Bond Portfolio", from which he draws a monthly income. We were given to understand that tax is automatically deducted from these funds before the profits are added to the value of them, and that no tax would need to be declared. Is this correct? I would hate to fall foul of HMRC by omitting to declare relevant information.

For his part-time job - does the employer not operate PAYE? If they do, then they should be taking his personal allowance into account. What's his tax code there? (Or is he self-employed?)

Bogof_Babe

anamenottaken wrote: »

For his part-time job - does the employer not operate PAYE? If they do, then they should be taking his personal allowance into account. What's his tax code there? (Or is he self-employed?)

He is a council employee (a school cleaner/handyman). His tax code is BR, and looking at the pay slip he got today, they have deducted 18.83% of his gross pay as tax. Goodness knows where they get that figure from. Doesn't make much sense to me. There's no mention on the wage slip of NI except in the summary box at the bottom, where it says :
National Insurance pay to date £4477.67
National Insurance EES to date £85.69
National Insurance to date [blank]
National Insurance table A
none of which I understand either.

He also pays 20% tax on his entire employment pension (leaving about £60 pw that he gets).

He has the aforementioned investment bonds, plus an ISA which is obviously tax free, and about £3K in an instant access Building Society account, on which the interest is also taxed, so I reckon he needs to reclaim his entire personal allowance, which would be around £1K to be refunded if I'm thinking on the right tracks.

Edit: Just noticed the Pension Income Tax summary box, where the figures do work out to exactly 20% having been deducted during the financial year.

jem16

Bogof_Babe wrote: »

We will have to fill in a R40 this year for OH, as he is taxed on his employment pension, his savings and his part time job, so received none of his personal tax free allowance this year. He doesn't get his state pension yet.

His tax code should have been applied to one or other of his income - either his pension or his job.

Are you saying that he was given a BR tax code for both? If that's the case you should phone HMRC immediately and one code should be changed to 647L (preferably the higher payer) and may just make it before March's pay thus resulting in an automatic refund.

Main query is, he has a good chunk of his savings in an "Investment Bond Portfolio", from which he draws a monthly income.

If that monthly income is 5% or less then there is no need to declare it as it's technically a withdrawal of capital.

jem16

Bogof_Babe wrote: »

He is a council employee (a school cleaner/handyman). His tax code is BR, and looking at the pay slip he got today, they have deducted 18.83% of his gross pay as tax. Goodness knows where they get that figure from. Doesn't make much sense to me. There's no mention on the wage slip of NI except in the summary box at the bottom, where it says :
National Insurance pay to date £4477.67
National Insurance EES to date £85.69
National Insurance to date [blank]
National Insurance table A
none of which I understand either.

Is he paying into the Local Government Pension scheme? If so that amount would be taken off before tax - would that make the difference?

As to NI - he wouldn't pay that until he was earning at least £110pw and then he pays 11% of the amount above that. National Insurance EES means employee contributions so he has paid £85.69 so far this year.

Bogof_Babe

Hi, and thanks for the further replies.

His Tax Code reads as BR on his wage slip, and BR/0 on his pension slip. I take it this is wrong then? He gets more money via the job, so should he ask their Payroll dept. to amend the code they use for his wages? Would he get the refund as a lump sum, or just by paying less tax from now on?

He didn't join the pension scheme as he is nearly 64 so it wouldn't have been worth it for a few quid a year in benefit.

jem16

Bogof_Babe wrote: »

His Tax Code reads as BR on his wage slip, and BR/0 on his pension slip. I take it this is wrong then?

Unless he has another form of PAYE income that you haven't mentioned then yes it's wrong. Code 647L should be attached to his job and BR to the pension. Did he hand in a P45 or complete a P46?

How did the pension come to be using BR? Did he have the pension before the job or vice versa?

He gets more money via the job, so should he ask their Payroll dept. to amend the code they use for his wages?

No he needs to phone HMRC and find out why he has BR attached to both and get a tax code allocated to his job.

Would he get the refund as a lump sum, or just by paying less tax from now on?

Assuming he is paid 4 weekly like most council employees he would get the refund as a lump sum as there is only one more pay due before the end of the tax year - this is assuming you get it dealt with asap. If it misses the March payment you will have to apply for a refund and that will probably take until June at the earliest as you will have to wait for P60s.

I suggest he phones HMRC tomorrow.

He didn't join the pension scheme as he is nearly 64 so it wouldn't have been worth it for a few quid a year in benefit.

Free money and a final salary pension would definitely have been worth it.

Bogof_Babe

Phew, I didn't realise it was so complicated. I assumed it was meant to be like that and we would just have to fill in a form after 5th April to reclaim the overpaid tax.

He has had his pension for about four years, but only started the job last summer. He wasn't asked for any P45 or P46 documents, maybe because it is officially a short term contract (which they have just renewed to run until August). The only thing he had to do was get his CRB check done.

He was TUPEd in his previous job when the company was bought out, and paid into the new pension scheme for a couple of years, but only gets a once a year payment of about £60 now, hence thinking it wasn't worth having money deducted for what will be a max of two years (he plans to pack it in when he reaches 65), just for a few quid extra pension. His existing pension is from the job he held for 35 years, prior to the company being bought out.

I'm not sure why his pension tax code is BR, unless it is because he commenced taking it before he reached pension age, so they assumed he would be getting another job.

Looks like he has some phone calls to make (I don't suppose they will speak to me due to data protection act, which is a pain as I'm struggling to understand all this so goodness knows how he will manage - he doesn't even know I'm looking into this yet!). Are HMRC open on Saturdays I wonder.