Help with this taxing question....please!

adewalton

hi there,

need a little bit of advice re this:

i will explain our circumstance first.

both me and my wife do not work anymore, we get state and private pensions but do not receive over the amount you are allowed to receive before paying tax.
we have savings and receive interest on these saving, again all this seems to fall below the allowance.
over the last few years we have received a refund from the tax office as our interest is taxed a source (-20% i think).
at the moment a friend (an accountant) fills out our online tax return, we can log in a see this as we have set up online compleation of our tax return.

quite a simple little set up i know, we have no shares or anything else, we just get the above. we own our own home too.

would we be better telling our banks that we want our savings interest paid without any tax?
what do you guys think?
whats the best / easyest option.
the friend my stop doing the returns for us in the future and we are not sure if we coould fill our own return in? which is the way to go?

thanks in advance guys!

Mikeyorks

adewalton wrote: »

would we be better telling our banks that we want our savings interest paid without any tax?

You can only do that if the totality of your income (pensions + gross interest) is equal to or less than your personal allowance.

If your friend hasn't mentioned that then either he's a rubbish accountant .............. or the more likely case is you slip over the personal allowance but sit in the 10% Savings band that sits just above it? If that's the case - you can't get your interest gross. You have to pay 20% .... then reclaim the excess.

Post some figures .... and more specific advice can be offered? It may be that adjusting the interest bearing accounts between yourself / wife would give a less taxing result? Again .... I would have expected your friend to advise.

adewalton

hi mikeyorks,

thanks for the reply.
i dont think we fall in the 10% bracket?
when we look at the figures online we have an allownace of around £9,500 and the income is only around the £5k mark?

we seem to get a large amount back each year, it seems to be 20% on the income earned?

i / we dont really understand it properly to be honest.

i was told to contact the banks and confirm that i wish to have my / our interest paid gross with no tax stopped?

hope this sheads more light on the question?
whats the best thing to do?

thanks again,

jennifernil

If you have a full basic state pension, that is around £5050 on its own, are you sure about your figures?

And I take it you are both over 65?

If so, and it all adds up correctly, you certainly seem to be well below the tax free amount and should apply for gross interest.

You will need to fill in an R85 for each bank for each person, unless the accounts are joint. I think you can have 2 accounts on each form, so you may need several forms. You just download and print the R85s from the HMRC website, or ask your bank for them.

There is no question of HMRC "issuing" anything, it is up to you to make a declaration and keep things under review.

Mikeyorks

adewalton wrote: »

when we look at the figures online we have an allownace of around £9,500 and the income is only around the £5k mark?

The personal allowance fits with an age profile of 65-74? But - as jennifernil correctly queries - your total income looks a bit understated if you have private and state pensions + interest? (however if you're having to complete an SA Return that does suggest the private pension isn't sufficient to collect any tax potentially payable on the State pension)

If you're confident the overall income is less than the personal allowance - then file an R85 on all your interest generating accounts. Better to have the interest gross than reclaim it after the year end.

And - if you're doing that .... then you're not a 'taxpayer'. So get your friend to attempt to have HMRC agree you don't need to file Returns anymore?

adewalton

hi again,
yes we are 65 and 66 years old.
is state pension taxable? i get £392 per month? my wife gets £361 per month?
our private pensions are £420 and £212 per month?
the interest is approx £360 per month (this is after tax at the moment).

what do you guys say to that?
what should we do?
i / we are not sure if the sate and private pensions count?

can you advise better now?

thanks again

Mikeyorks

The State Pension is definitely taxable.

How is the interest divided between you? As that may make a difference to the outcome.

adewalton

hi mikeyork,

the accounts are joint accounts.
my wife has one small amount that is just in her name, it is a bit of money she was left by her mum and dad.

cheers

Mikeyorks

Right.

The interest at £360 net / per month is approx £4320 net per annum. That is £5400 gross. For tax purposes a joint account(s) is regarded as 50:50 ..... so that is £2700 each.

Easy one first - your wife : £361 + £212 per month translates to £6876pa. Adding on the £2700 gets us to £9576. As her personal allowance will be £9490 ...... then she is just into the taxable band? But .... as State Pension is typically paid 13 times (ie 4 weekly) .... then she will definitely be taxable if that extra period needs adding in. However - she will be liable for a lot of the tax on her interest at 0% (£9490 - £6876) and the remainder at 10%.

You are more complicated. £392 + £420 per month translates to £9744pa. That exceeds your personal allowance (and the comment above re State Pension at 13 x per annum also applies).

So ...... I now have some suspicion regarding your figures? As I suspect the £420 may be a net figure and some tax (for the state Pension) is already deducted. It would be unusual were that not the case .... and the answer can usually be found in the P60 from your pension provider and / or a coding Notice(P2) issued by HMRC which will have a restriction in it of the annual amount of your State Pension?

Superficially you also finish in the 10% tax band for some of your interest - but for a much smaller refundable amount than your wife. And it's virtually certain some of your interest is taxable at 20%.

But the bottom line is that neither of you can apply for payment of your interest to be made gross. I'm afraid you need to pay the 20% at source - and then reclaim any excess. For your wife a lot of that will be at 20% ........ for yourself just at 10%.

I should also add .......... you need your friend to continue doing your SA Return. If not - it's relatively simple - a decent local Accountant shouldn't charge you above £150. But you need it doing for you.

jennifernil

Unfortunately, pretty much all income counts for tax purposes!

I am surprised your accountant friend has not explained all this to you properly.

Mike gives a very comprehensive explanation, and your figures confirm what I also was thinking.

If you have been getting ALL the tax back on your interest for several years, then I think you should be worried about the figures submitted on your SAs, as you have only been entitled to the higher personal allowances for a year or two. You get it in the tax year in which you become 65.

However, as you only have these 3 sources of income, then it is very easy to do your self assessment yourself if necessary, but, as it looks like you can both reclaim some tax on your interest, I would think the form you should submit is the very simple R40

http://search2.hmrc.gov.uk/kbroker/hmrc/forms/viewform.jsp?formId=818

I use this form as I only have a small State Pension plus interest, and it is very easy to fill up, and I usually get my refund within 2-3 weeks.

If your tax code, and therefore your tax deducted on your pensions, is correct, you really do not need to be in Self Assessment. So you should contact HMRC to see if you can leave Self Assessment.

Money saving tip......you can probably save some tax by having separate savings accounts with more savings in your wife's name as her pensions are smaller.

Mikeyorks

jennifernil wrote: »

If your tax code, and therefore your tax deducted on your pensions, is correct, you really do not need to be in Self Assessment.

I would suspect that the gross interest exceeded the £10k SA admission limit ..... when interest rates were more benevolent ....not too long ago?