Can you help a newbie with tax implications

DFChamp

This is my first post so I hope you will be kind.

I am 57 in November and my husband will be 60 the same month.

We retired early and draw modest occupational pensions. Neither of us pay tax on our pensions as they are under the personal tax allowance threshold.

We have the following investments with Cofunds:

£54k in ISAs each
£52k in Investment fund which we draw £800 per month as income.

I need to establish if I need to declare anything to HMRC

I see on the Tax Statement for last year that Cofunds have taxed interest at source. So presumably if after splitting the Investment fund interest 50:50 and adding it to each of our pension income, we should be able to claim this back if the total for each does not exceed the personal tax allowance?

The Capital Gains Tax statement is less clear as I am not sure what the tax credit is for. Is this because the CGT is taken at source and then Cofunds add it back on if we have not exceeded our annual CGT allowance?

Sorry if this confuses, but I a happy to give further clarification if needed.

Also, presumably we do not include the £800 per month as income for income tax purposes as this is our own capital that we are drawing down. Can you confirm this please?

TCA

What exactly is your £52k invested in? You are presumably selling part of it every month for your £800?

xylophone

http://www.which.co.uk/money/savings-and-investments/guides/investment-bonds/investment-bonds-tax-issues/


http://www.pruadviser.co.uk/content/knowledge/technical-centre/taxation_uk_investment_bonds/

The above may assist?

DFChamp

The £52k is held as Investment funds portfolio. Inc - First state Gbl Listed Infrastructure B Fund Inc, Henderson Strategic Bond I Fund Inc, Ignus Feeder of UK Property I Fund Inc, Legal & General UK Property Feeder I Fund Inc, M&G Global Dividend I Fund Inc, M&G Optimal Income I Fund Inc, Newton Global Income W Fund Inc, Templeton Global Total Return Bond WH3Fund Inc, Threadneedle Monthly Extra Income Z Fund Inc, Threadneedle UK Equity Income Z Fund Inc

DFChamp

Yes, funds are being sold to provide our £800 income each month.

xylophone

Sorry, I had thought that you were referring to an insurance company investment bond but it seems that what you have is a joint investment account?

If you are receiving interest from a fund which has been taxed at source and you are a non tax payer, then you can reclaim the interest paid. Each of you claims separately.

Tax on fund dividend income cannot be reclaimed.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/419506/R40_M__internet_v2.0.pdf

If you are selling units every month, this is not taxable as income.

You may have a capital gain (or indeed a capital loss) but this need not be reported to HMRC except in certain circumstances.

https://www.gov.uk/tax-sell-shares

I don't understand the reference to a tax credit on the CGT statement?

TCA

Capital gains tax isn't paid at source, it has to be declared on a tax return. But at those levels of withdrawal you're not exceeding the annual allowance, so don't need to report anything to HMRC.

I'm not sure what tax credits have to do with capital gains tax - are you sure they're not dividend tax credits? As xylophone said, dividend tax credits can't be reclaimed and as a basic-rate tax payer (or non tax payer), there's no further tax due, so no declarations are necessary unless you already complete a tax return. Today's budget changed the way dividends are taxed from next year, where an annual allowance will be given for up to £5k of dividends.

DFChamp

Thank you to both. You have both confirmed what I already thought. That I don't need to declare to HMRC.