Confused with HMRC rebates!

ceejayblue

I retired in June 2011 and was only getting my work pension of approx £2,500 a year. I had inherited around £70K from the sale of my mum's house and I saved this in a Post Office Savings account and my £15K one off payment from the my pension provider went into my National Savings & Investment account. As I wasn't a tax payer I filled in R85 forms for all my savings accounts. From September 2013 I started to receive my State Pension.

Now this is where I'm confused, in the first year after retirement I had a couple of good sized rebates from the tax man which apparently related to my previous employer's health plan that I was in and it was counted as a benefit. Then last year I received another rebate and this year I've just received another. I rang the HMRC and they told me it was because I was had previously declared £1500 on my savings account. I didn't even think about it when I got my last tax coding.

Now it looks like I may owe them money, which is fine because I know that I may have been wrongly paid. I've been in touch with 3 of my savings providers and have got details of the last 6 years of interest. I'm now confused because my NSI account only pays interest at the end of the 5 year term and my ISAs were moved a couple of times. I don't have the details anymore of my old ISAs so wonder if they will need them all?

I obviously have misunderstood the "tax free" savings and didn't take into account that even though the interest was tax free the total interest paid comes under income! A stupid mistake to make

p00hsticks

ceejayblue wrote: »

Then last year I received another rebate and this year I've just received another. I rang the HMRC and they told me it was because I was had previously declared £1500 on my savings account.

???? This doesn't make sense to me at all ????

ceejayblue wrote: »

I didn't even think about it when I got my last tax coding.(

What was that coding ? Do you agree with it - the coding notice should show how HMRC have arrived at the value ....

ceejayblue wrote: »

I obviously have misunderstood the "tax free" savings and didn't take into account that even though the interest was tax free the total interest paid comes under income! A stupid mistake to make

My understanding is that interest on ISAs doesn't count as taxable income.

Interest on other savings accounts does but normally the bank would deduct tax at the standard rate and so it's only something you need to worry about if you're a higher rate tax payer.

If you've filled in an R85 to declare that your income is under your tax allowance and this is not true, then there would be some tax to pay - but it's not clear if this is the case here ?

harz99

As I understand it, Cash ISAs don't count for any income tax calculation whatsoever.


Also as I understand it, in addition your NSI account will only come into the calculations in the tax year in which any interest is actually paid, which could be at the end of the term if it is paid in one lump, or each year if the interest is paid annually and rolled up into the capital sum.


This link may help you understand more easily:
http://www.uktaxcalculators.co.uk/tax-rates/2015-2016/


As I understand it, if your two pensions together come to less per annum than the amount used to arrive at your tax code you are unlikely to pay any income tax, nor any savings tax unless your total savings interest paid in a tax year exceeds the £5000 threshold.


No doubt other more knowledgable people will be along to confirm/rebut what I think!

zygurat789

ceejayblue wrote: »

I retired in June 2011 and was only getting my work pension of approx £2,500 a year. I had inherited around £70K from the sale of my mum's house and I saved this in a Post Office Savings account and my £15K one off payment from the my pension provider went into my National Savings & Investment account. As I wasn't a tax payer I filled in R85 forms for all my savings accounts. From September 2013 I started to receive my State Pension.

Now this is where I'm confused, in the first year after retirement I had a couple of good sized rebates from the tax man which apparently related to my previous employer's health plan that I was in and it was counted as a benefit. Then last year I received another rebate and this year I've just received another. I rang the HMRC and they told me it was because I was had previously declared £1500 on my savings account. I didn't even think about it when I got my last tax coding.

Now it looks like I may owe them money, which is fine because I know that I may have been wrongly paid. I've been in touch with 3 of my savings providers and have got details of the last 6 years of interest. I'm now confused because my NSI account only pays interest at the end of the 5 year term and my ISAs were moved a couple of times. I don't have the details anymore of my old ISAs so wonder if they will need them all?

I obviously have misunderstood the "tax free" savings and didn't take into account that even though the interest was tax free the total interest paid comes under income! A stupid mistake to make

You say you are confused so the first thing to do is to know for certain and explain the highlighted bits above.
I can confirm that ISAs are completely ignored for tax purposes.
With regards to the NS&I a/c you should find out more about it. If the interest is taxable then it is taxable when you receive it ie when it is added to your account, this may be annually but you can't receive the money until the end of the 5 yr period.
Your tax is governed by your code number, the state pension has no mechanism for tax collection so it is taxed by reducing your code number which is then applied to your other pension. You have a personal allowance of 10,600, if your SP is £7,000 then the code applied to your other pension would be 360 representing £3,600 worth of allowances meaning that no tax would be due on £2,500 and there would be no tax on the next £5,000 on interest in 2015/16. 2016/17 may be even better.
With regards to previous years we need to know your income and tax paid for each year.

ceejayblue

Sorry, rambled a bit in my original post. On my latest rebate letter it says the following:

in 2014/15:
Income tax paid
State Pension/State Benefit 7274 0
PAYE income(works pension) 2498 0
bank & building soc interest 1500 300

totals 11372 300

Personal allowance 10000

Difference 1372
Tax @ 10% 1372
tax overpaid 162.80

I've not paid any tax on any of my savings accounts because I filled out R85 forms.

I'm sure I will have to repay the rebates, which isn't a problem, but just wished I'd thought about it when I got the first rebate back i 2011/12! I've got all the tax certs now so will do a letter and get them off to HMRC and wait and see what happens!

ceejayblue

Sorry, couldn't get the columns to go right

jem16

ceejayblue wrote: »

I've not paid any tax on any of my savings accounts because I filled out R85 forms.

I'm sure I will have to repay the rebates, which isn't a problem, but just wished I'd thought about it when I got the first rebate back i 2011/12! I've got all the tax certs now so will do a letter and get them off to HMRC and wait and see what happens!

It looks like it's only going to be from tax year 2013/14 when you started to receive your state pension that any issue might arise. So it's really only those two tax years. Is the figure of £1500 interest for 2914/15 correct? Remember that you don't include any interest from ISA accounts at all.

What's your figures for 2013/14?

zygurat789

ceejayblue wrote: »

Sorry, couldn't get the columns to go right

I make the total £11,272.

On that figure your tax liability would be £127.20 plus the rebate paid to you in error £162.80 making £290.00 in total.

However, there is still the matter of this interest, could you split it between accounts?

harz99

ceejayblue wrote: »

Sorry, rambled a bit in my original post. On my latest rebate letter it says the following:

in 2014/15:
Income tax paid
State Pension/State Benefit 7274 0
PAYE income(works pension) 2498 0
bank & building soc interest 1500 300

totals 11372 300

Personal allowance 10000

Difference 1372
Tax @ 10% 1372
tax overpaid 162.80

I've not paid any tax on any of my savings accounts because I filled out R85 forms.

I'm sure I will have to repay the rebates, which isn't a problem, but just wished I'd thought about it when I got the first rebate back i 2011/12! I've got all the tax certs now so will do a letter and get them off to HMRC and wait and see what happens!

Where does the £300 figure come from? That looks like 20% tax paid on your £1500 savings interest, if so a rebate amount would be due because the interest is only subject to 10% tax at that low total amount.

zygurat789

harz99 wrote: »

Where does the £300 figure come from? That looks like 20% tax paid on your £1500 savings interest, if so a rebate amount would be due because the interest is only subject to 10% tax at that low total amount.

Looking at the data I understood that the £300 was tax on £1500 interest which HMRC were under the impression had been deducted at source.

ceejayblue

Yes, as I undertand it, the £300 would be the 20% tax on the £1500 interest if I was getting that much and they rebated me 10% tax. It is very confusing. I've now got all the tax certificates and will send them off this week and see what happens.

Thanks for looking at it for me