Pensioner allowances 2015

talexuser

A pensioner has a total gross income of less than £15,500 in 2015, and this is made up of say £10,000 pension and £3,000 interest from cash savings and a few shares.

They also have a S&S ISA pot over the years now with a capital value of £200,000 all in accumulation funds and they don't require an income from those just at the moment.

I've been asked the question and just want to be absolutely certain I'm giving the correct response that they should not be liable for income tax and should fill out R85s for the cash savings interest.

Also the taxable income is not affected by later either
1 switching some ISAs to income and taking a couple of grand a year in dividends, or
2 alternatively cashing in a couple of grand a year?

Cheers.

SnowMan

I think that's right. My mum is in a very similar position.

She is going to fill in an R40 at the end of 2015/2016 to reclaim the interest, but I can't see why filling in an R85 wouldn't be allowed to save having to do that (although it might be worth checking that with HMRC).

Because of the new £5,000 0% band for savings interest, there is no tax to pay on the £3,000 interest in 2015/2016 because it is interest that falls into the new 0% band (the first £500 is strictly speaking income within the personal allowance). Assuming the £10,000pa is a gross figure, total income including savings income of say £3,000 (assumed gross) is £13,000 which is less than £15,500.

The limit presumably depends on whether the personal allowance is £10,500 or £10,660 which depends on age. I'm assuming the £5,000 band is on top of these allowances rather than being the amount that takes it up to £15,500.

The sale of ISA investments is not income (and of course you don't have to worry about CGT as it's an ISA), and the ISA dividend income isn't taxable as it comes from a stocks and shares ISA.

The shares outside an ISA won't really affect things unless dividend income is large enough to push the pensioner into higher rate tax.

Eco_Miser

That's my belief for the 2015-16 tax year. Further, for the same income in 2014-15 (and 2013-14) some of the savings interest should be taxed at 10% rather than the 20% which will be deducted, so a claim should be made on form R40.

talexuser

Thank's both. I believe the 2014 limit is £12,230 for the 10% savings tax rate, but they will most probably be above this since only retires in July so has 3/4 months of salary instead of the lower pension for that period in the 2014 tax year.

The question of R85 or R40 is interesting. If you are postive your total gross will be less than £15,500 in 2015 tax year, should you not send away R85s on April 6th and get future interest gross, or should you pay 20% and then send in an R40 in arrears?

noh

If your income is more than the tax free allowance, £10500 in 2015. Then you cannot use a R85 and should use an R40.
Have a read of the R85 in particular the first question.

The £5000 savings income is not part of your tax free allowance.
It is taxable income that is taxed at 0%.

SnowMan

noh wrote: »

If your income is more than the tax free allowance, £10500 in 2015. Then you cannot use a R85 and should use an R40.
Have a read of the R85 in particular the first question.

I think it is almost certain that an R85 can be used (but of course the current R85 will need to be updated by HMRC as you indicate)

Have a look at the 'Cutting the 10% tax rate on savings' factsheet.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293747/Fact_sheet_template_-_10__tax_9.pdf

That seems to clearly say Derek can register for tax free savings through an R85, even though he earns more than the £10,500 personal allowance, because his savings income doesn't take his total income above £15,500, and so all his savings interest is tax free.

Sharon, for whom only some of her savings interest is tax free needs to use an R40.

ANGLICANPAT

So if you're likely to be on the cusp, go for claiming back later??

SnowMan

ANGLICANPAT wrote: »

So if you're likely to be on the cusp, go for claiming back later??

Either that or immediately cancel your R85s at the point in time when you realise you are certain you will go over the limit if you continue to receive tax free interest, and then fill in an R40.

Eco_Miser

Can I just check my understanding of the new rules for 2015?

I hit state pension age that year. So, I could take my state pension, and draw the difference between that and £10,500 from my private pension pot, and up to £5000 savings income(no way I'll get that much), plus income from ISAs, plus 25% of the private pension pot (if I don't take it earlier) and pay no income tax at all.

Or perhaps better, I defer my state pension, for a 10.2% boost to subsequent years, and draw £10,500 from the private pension, still paying no tax.

Linton

Eco_Miser wrote: »

Can I just check my understanding of the new rules for 2015?

I hit state pension age that year. So, I could take my state pension, and draw the difference between that and £10,500 from my private pension pot, and up to £5000 savings income(no way I'll get that much), plus income from ISAs, plus 25% of the private pension pot (if I don't take it earlier) and pay no income tax at all.

Or perhaps better, I defer my state pension, for a 10.2% boost to subsequent years, and draw £10,500 from the private pension, still paying no tax.

You are correct assuming that you have no other taxable income that tax year eg income from employment upto the time you retire.

kidmugsy

Eco_Miser wrote: »

Or perhaps better, I defer my state pension, for a 10.2% boost to subsequent years, and draw £10,500 from the private pension, still paying no tax.

That's the way to do it!:)