retired person - stop tax being automatically deducted?

waterwatereverywhere

Hi,

A member of our family has recently retired. She has savings accounts where interest is still automatically deducted.

I vaguely recall reading somewhere there is a form you can fill in to stop this happening when you retire as you are not liable to pay tax any more.

Please does anyone know what the form is and the ins and outs of getting it set up with various different banks/building socs?

Thx very much in advance for any help on this.

Quiet_Life

Check out HMRC at this link
http://www.hmrc.gov.uk/incometax/tax-free-interest.htm

waterwatereverywhere

Thank you very much Quiet Life - that link is perfect - all the info I need.

olivetti

waterwatereverywhere wrote: »

Hi,

A member of our family has recently retired. She has savings accounts where interest is still automatically deducted.

I vaguely recall reading somewhere there is a form you can fill in to stop this happening when you retire as you are not liable to pay tax any more.

Please does anyone know what the form is and the ins and outs of getting it set up with various different banks/building socs?

Thx very much in advance for any help on this.

Just because you retire DOES NOT mean you do not pay tax anymore. You are as liable as you were at any other point in life. There are some increased personal allowances that mean you might not pay tax, or less tax but it all depends on your income. See here:

http://www.hmrc.gov.uk/rates/it.htm

Mikeyorks

waterwatereverywhere wrote: »

- all the info I need.

It certainly isn't.

The premise that someone stops being liable for tax once they retire is simply silly. Do a bit more reading before you advise them into problems :-

http://www.hmrc.gov.uk/pensioners/paying-retire.htm

John_Pierpoint

olivetti wrote: »

Just because you retire DOES NOT mean you do not pay tax anymore. You are as liable as you were at any other point in life. There are some increased personal allowances that mean you might not pay tax, or less tax but it all depends on your income. See here:

http://www.hmrc.gov.uk/rates/it.htm

In fact it gets more complicated for pensioners, never mind the fiasco over the 10% tax rate, pensioners need to be aware of the built in 30% tax zone they face.

http://www.hmrc.gov.uk/incometax/personal-allow.htm

waterwatereverywhere

Hi,

Many thanks for the replies - I re-read my initial post and realise it was stupid! I know that you don't stop paying tax just because you retire so this was really carelessly worded. What I didn't say but should have is the person in question does I know have a very low income, almost certainly below the personal allowance level (though I will be checking and thx for the links on this info), so I think should be entitled to complete the forms asking for interest to be paid without tax being automatically deducted.

Thx again for the helpful links - I haven't got to the last one yet and don't understand the reference to a "built in 30% tax zone" but will try to look into this.

John_Pierpoint

There are three levels of Personal Allowance
2010-11 tax year
Income limit
Basic
£6,475 & £100,000+
Age 65-74
£9,490 & £22,900+
Age 75 and over
£9,640 & £22,900+
If you become 65 or 75 during the year to 5 April 2011, you are entitled to the full allowance for that age group.
If you are 65 or over and your income is between £22,900 and £100,000

If your income is over £22,900 (the income limit for age-related allowances) but not more than £100,000, your age-related Personal Allowance is reduced by half of the amount - £1 for every £2 - you have over the £22,900 limit, until the basic rate allowance is reached. So if, for example, you're 66 and have income of £23,400 - £500 over the limit - your age-related Personal Allowance is reduced by £250 to £9,240.

=====================================================================================

Let us pretend that the pensioner's income is 22,900, now earn an extra 2 pounds and pay 40 pence on the two pounds taken together.
So far so good BUT now pound number 22,900 becomes taxable at 20%. So the extra 2 pounds have created a tax liability of 40 + 20 = 60 pence; ie 30%

Now earn another 2 pounds and pound number 22,899 becomes taxable...............and so on until the extra allowance has dropped back to £6,475.

There are dodges round this problem to a certain extent - such as buying National Savings certificates or putting as much money as possible into an ISA.

Mikeyorks

Wonderful explanation - and as obtuse as ever - had me reaching for the calculator - but spot on.

John_Pierpoint

Presumably the "Over 100,000" trap applies to tax payers aged 65+ too; but I double there are many 100,000+ pensioners are reading this.

I am cynical enough to believe the whole ghastly mess is "confusion marketing" - like mobile 'phone contracts all you can really say is "I know I'm not on the cheapest possible tariff" for my needs. The job of "extracting the maximum number of feathers from the goose with the minimum of squawking", must be enhanced by old folks having to deal with this complexity;not to mention the dual income tax - one by the year called Income Tax and the other by the week called National Insurance. (I suppose raising the retirement age will also raise the NI tax from what would have been "working pensioners" before the change?).