Are my MIL & FIL paying too much tax?

ipri

Hi...My mother in law and hubby are both in 80's and I believe they pay uneccesary tax. He has RAF + state pension + a small pension from job after leaving RAF...I presume these are all taxed at basic rate at source?...She gets only a part state pension...she rarely worked..... savings( probably not too much.)

She diligently fills forms in every year and pays tax in the order of around 3 thousand For him

I doubt she needs to pay any tax...

My own tax situation probably involves quita bit more money...I dont fill forms...just phone HMRC to inform of changes in savings interest....my main tax comes off pension at source.

jem16

ipri wrote: »

Hi...My mother in law and hubby are both in 80's and I believe they pay uneccesary tax. He has RAF + state pension + a small pension from job after leaving RAF...I presume these are all taxed at basic rate at source?...

They shouldn't be. It is likely his RAF pension should use his main tax code and the small pension uses BR (Basic Rate). State pension would be paid gross but is taxable and any tax due would normally be taken by a reduction in his tax code applied to the RAF pension.

What tax codes are being used for the RAF pension and the other small pension?

She gets only a part state pension...she rarely worked..... savings( probably not too much.)

State pension is paid gross so if that's her only income it won't be taxed.

She diligently fills forms in every year and pays tax in the order of around 3 thousand For him

What forms are you referring to? A tax return?

My own tax situation probably involves quita bit more money...I dont fill forms...just phone HMRC to inform of changes in savings interest....my main tax comes off pension at source.

Which is what you would expect.

You would need to give details of income and tax codes for your FIL and MIL before anyone could comment further.

lincroft1710

RAF pensions used to be fairly generous, so coupled with state pension and works pension, there could easily be £3K tax.

John_Pierpoint

Unfortunately "pensioners" have more complex tax affairs than ordinary people and I doubt one in 10 understands the situation completely. The Chancellor managed to make a fool of himself trying to crack a joke and score points in the budget about this. There is a small 30% tax band and possibly a 10% tax band involved.
HMRC try to explain here:
http://www.hmrc.gov.uk/rates/it.htm

zygurat789

The technical problem is the clawback of the age allowance given to those aged over 65, on incomes between £26,100 and £28,220 (2013/14). This clawback equates to an effective 30% tax rate on this band of income. There is no way that this can be incorporated in the PAYE code number so it has to be dealt with individually, by forms ie a tax return. However, HMRC usually make some attempt to restrict the code and the maximum payment would be 28220-26100= 2120X45% which gives £954. So £3,000 is rather over the odds.
It would appear that you don't know that much about your parents affairs so it is impossible to be definitive as to any reason. I would suggest that they have a quick chat with a local (qualified) accountant, yes it will cost but you never know a rebate for 5 years may be more thn the fee.

John_Pierpoint

I think there might also be a married couples allowance in the mix.
When the 10% band first started, that was enough to befuddle my mother.
She handled the situation by storming into the local tax office and delivering a rant along the lines of
"Look young man, I am an old widow, I will be 80 soon, all I'm getting is my pension, so you can have this back".

The clerk probably thought, "silly old woman, if she cannot be bothered to give us the figures she won't be getting her rebate", because she heard no more about it.

In actual fact for the year in question, she had still been working, prior to realising that these new fangled computer things were taking over clerical work and she would not be able to adapt. The figures on the back of the envelope suggested to me she had been in the age allowance tax trap (which was more than 30% in those days, more like 55% if I remember correctly).

Meanwhile the 10% band had been introduced, so I managed to suggest that we work on the figures "together" for the year that had now just ended. We filled in the forms and back came a cheque for something between £200 & £300, a figure that grew to £400 in later years. Magic money !

My understanding is the the Government set up an extra department in St Austel to deal with the expected rush of pensioner's claims, but the volume expected never happened.

When in due course I came to sort out her brother's estate, I found a similar unresolved mess (It included a "K" code for PAYE which is bad news), unfortunately though I could ask for a complete reconciliation going back (then) 6 years because the old boy had been too careful with his money, to spend money keeping photocopies of what he had actually reported to HMRC, though I did manage to extract a letter explaining in detail how the age allowance had been exceeded by uncle's income.

Looking to the future, whoever will be the executor in due course for the "in-laws" will have to do, or pay for, this exercise.

There really is no substitute for someone in the family understanding the present financial situation and the resulting tax bill (and possibly having a lasting power of attorney in case of need). You can get an accountant to take on the job, but that would turn into an extra bill for life, which could be larger than the tax saved.

I think politically the government does not dare to rationalise these pensioner benefits, they are just hoping that deaths plus inflation and an increasing personal allowance will eventually remove the anomalies.

zygurat789

John_Pierpoint wrote: »

I think there might also be a married couples allowance in the mix.


I think politically the government does not dare to rationalise these pensioner benefits, they are just hoping that deaths plus inflation and an increasing personal allowance will eventually remove the anomalies.

This would make it all the more imperative to sort the situation out quickly.

John, the government ARE rationalising (getting rid of) these anomalies and charging the pensioners for the priviledge by reducing their age allowance

xylophone

You speak of in-laws - is the son/daughter still living and able to discuss the matter with the parents?

Are the parents willing to give sight of details of all their income so that tax can be calculated?

Has each of them received Notices of Coding?