Should my mum be paying tax?

mistermoneysaver

Hi all,
My mum - a retired widow, has savings of 50000 a pension from my dads old workplace - around 430 a month and is drawing the old age pension of around 115 per week. My question is should she be paying tax on her savings pension etc?

seven-day-weekend

It depends whether her income is more than her personal allowance. What is her tax code?

mistermoneysaver

Its 101p - slight mistake on the work pension its 289 after tax and old age pension is 117 a week - thanks for replying

seven-day-weekend

I'm no tax expert but this is what I understand, others will correct me if I'm wrong. If her Tax Code is 101, that means she can have an income of up to £1019 a year before tax. After that she will have to pay tax.

It is paid at different rates, but I don't know what these are, sorry.

Have a look at this link and I'm sure others will be along later who know a bit more.

http://www.ir35calc.co.uk/uk_tax_codes_guide.aspx

jem16

mistermoneysaver wrote:

Its 101p - slight mistake on the work pension its 289 after tax and old age pension is 117 a week - thanks for replying

Basically the code 101p has been worked out from her Personal Allowance of £7280(age 65-74) or £7420(75+) minus the amount of her state pension. The state pension is always paid gross.

As the previous poster says, this gives your mum a tax-free income of £1019 as hes's already used up the rest of it with her state pension. The works pension will then use that tax code. The first £1019 will be tax free, the next £2150 at 10% and then from £2151 at 22%.

So yes your mum should be paying tax on her savings.

excited

My Mums in the same boat except she doesnt have £50,000 savings about £20,000. Shes 71 and her tax code is 1019 too.


Is there any way to reduce the amount of tax paid.

df

Hoddie_2

It's worth checking that your mother is using her full ISA allowance - this website has a full section on which would be the best one(s) to save with. They generally provide better interest than normal savings accounts and the interest is tax free.

Also, £30,000 worth of Premium Bonds would almost certainly guarantee a monthly income of sorts, but would be impossible to predict. Again, this would be tax free. Your mother would need to weigh up whether she can risk not receiving the 'likely' prizes that you'd expect such a stake to generate, but there's the added bonus that you're also 'in the hat' for much larger prizes.