Cash and S&S ISAs when a spouse dies

Perelandra

redbuzzard wrote: »

What am I missing Perelandra? I must have overlooked some nuance here - the personal allowance for 13-14 is £9,440 and the basic rate tax band is £32,010 - making £41,450 of income before higher rate tax applies?

Not that I have paid any attention to this for years, any shares have been held in PEPs/ISAs.

Ah, this is an interesting one!

For those who are of retirement age (born before 6th April 1948), the income limit, before you start losing personal allowance, is only £26,100 (I was working from memory earlier when I said £25k):

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

So for pensioners, although they're technically still basic rate taxpayers between £26k and £41,450, loss of the personal allowance can increase the tax you pay from other sources- e.g. pension income- once you get to this level. (For younger people, it's a 100k limit, not £26k).

So below £26k income, it's simple. After there, you need to know more about the pensioner's income than the OP posted (and which may not be relevant!).

Perelandra

BFM wrote: »

so if lets say I have a S&S ISA which is predominantly Income producing funds and then cark it - its possible to pass those funds on to my wife as funds and not cash so wouldn't be taxed the same as interest from a cash ISA would?

every answer leads to another question with this stuff....

It actually doesn't matter what the source of the money is- whether you had them as funds, shares, cash or won it on the lottery. Your wife would be able to buy shares with that money, and any dividends received wouldn't have additional tax to pay, while she was a basic rate taxpayer//below £26k income (see my other post). Income from dividends is taxed very differently from interest in a savings account (but it clearly carries higher risk).

S&S ISAs are good- they make things simple, as you just don't need to worry about about tax issues. But for those on lower incomes in retirement, they don't really give that much of an advantage over holding the shares "unwrapped", as long as you manage the capital gains / dividends properly. At least, that's my opinion.

Tax rules can change, of course...!

redbuzzard

Thanks Perelandra. I did come across that only this week when I decided to do a monster retirement spreadsheet and looked up the allowances and rate bands - but I still didn't make the connection.

It didn't affect me as I was born in 1953, and I think I now have Homer Simpson syndrome - I have to dump old knowledge to make room for the new stuff because my head's full... :doh:

Perelandra

redbuzzard wrote: »

Thanks Perelandra. I did come across that only this week when I decided to do a monster retirement spreadsheet and looked up the allowances and rate bands - but I still didn't make the connection.

It didn't affect me as I was born in 1953, and I think I now have Homer Simpson syndrome - I have to dump old knowledge to make room for the new stuff because my head's full... :doh:

I think the date increases each year, so that it's at 65 that you start losing the personal allowance, so in 5 years it will apply to you.

I know about the dumping of knowledge, though! When I first came across these boards, I read the entirety of the "Pensions vs ISAs" thread on the Retirement planning board in a few evenings, and my brain was overflowing with information on there. Best 3 evenings I've ever spent.

grey_gym_sock

note that 65+-year-olds don't gradually lose the whole of their personal allowance when their income goes over £26,100 - they only lose the extra age allowance - i.e. their allowance gradually falls from £10,500 (or £10,660 if over 75) to £9,440 - i.e. the same amount as younger ppl.

everybody retains the standard £9,440 allowance until their income goes over £100k, when they gradually start using it.

(in both cases, the gradual loss is £1 of allowance lost for every extra £2 of income.)

however, the extra age allowance is supposed to be phased out soon. i.e. it is frozen, and the standard personal allowance will be increased until it catches up with the higher age allowance. so soon it will just be 1 personal allowance for everybody, which you start losing when your income goes over £100k.

(i'm not sure if everybody knew all this already, but thought i'd make sure ... )

Perelandra

grey_gym_sock wrote: »

note that 65+-year-olds don't gradually lose the whole of their personal allowance when their income goes over £26,100 - they only lose the extra age allowance - i.e. their allowance gradually falls from £10,500 (or £10,660 if over 75) to £9,440 - i.e. the same amount as younger ppl.

You're right of course, I meant to say "higher" allowance in the above, but didn't.

Ta!

redbuzzard

I surmised that wouldn't apply to me as age related allowances are not being given to anyone who turns 65 after the 5th April just gone.

I also read somewhere, maybe HMRC, or a Grauniad article I found, that it was not possible to drop below the basic personal allowance (which is all I will have anyway as things stand) unless income is over £100,000 (not much chance of that now, in today's value at any rate...).

Sorry, I seem to be making rather a meal of this. I didn't realise retirement was going to be such hard work.

kidmugsy

If ever it becomes worthwhile to invest in bonds again, S&S ISAs will be just the ticket: they ensure that you earn the "coupon" - i.e. the interest - free of tax. This is well worth bearing in mind for retirement.

P.S. "This still feels better than having annuities and one of us shuffles off their coil and there isn't a pot." Well, there may not be a pot but there does remain an income stream, the nature of which you determine when you choose your type of annuity. Or even, there is a pot if instead of an annuity you opt for income withdrawal. If either of you has access to a pension that would receive employer contributions, or if either of you is a higher rate taxpayer, you are probably being mugs in eschewing pensions.