Income Tax

enthusiasticsaver

Have you used your isa limits for this year? I bed and isa anything invested outside the isa limit at the start of each tax year. Makes the tax side of investing so much easier.

DFChamp

jamesd wrote: »

Well, if you prefer you could describe the ways you've been drawing for each tax year and we might end up being able to tell you it's not necessary to tell HMRC anything. There's a pretty good chance that we could end up doing that.

Thank you so much but I really don't know what to tell you. I have been looking through the paperwork. I can tell you that outside of the ISA wrapper we have investments in Open Ended Investment Companies/Unit Trusts through a jointly owned (me and my husband) Cofunds Investment Funds Plan with an expected yield of 3.5%
Looking at the Tax summaries this is what they show:
Consolidated Tax Voucher
Interest distributions received net of tax (basic rate)
Details for 2013/14
Authorised unit trusts and OEICS Amount after tax deducted= £54.69 Amount of tax deducted= £13.68 Gross amount before tax deducted = £68.37
Dividend distributions (10% tax rate)
Details for 2013/14
Authorised unit trusts and OEICS Dividend/distribution= £314.40 tax credit = £34.94 Dividend/distribution plus credit £349.34

Consolidated Tax Voucher
Interest distributions received net of tax (basic rate)
Details for 2014/15
Authorised unit trusts and OEICS Amount after tax deducted= £511.59 Amount of tax deducted= £127.91 Gross amount before tax deducted = £639.50
Dividend distributions (10% tax rate)
Details for 2014/15
Authorised unit trusts and OEICS Dividend/distribution= £1,236.68 tax credit = £137.45 Dividend/distribution plus credit £1,374.13

Consolidated Tax Voucher
Interest distributions received net of tax (basic rate)
Details for 2015/16
Authorised unit trusts and OEICS Amount after tax deducted= £452.81 Amount of tax deducted= £108.21 Gross amount before tax deducted = £541.02
Dividend distributions (10% tax rate)
Details for 2015/16
Authorised unit trusts and OEICS Dividend/distribution= £1,406.17 tax credit = £156.25 Dividend/distribution plus credit £1,562.42

grey_gym_sock

DFChamp wrote: »

Thank you so much but I really don't know what to tell you. I have been looking through the paperwork. I can tell you that outside of the ISA wrapper we have investments in Open Ended Investment Companies/Unit Trusts through a jointly owned (me and my husband) Cofunds Investment Funds Plan with an expected yield of 3.5%
Looking at the Tax summaries this is what they show:

these consolidated tax vouchers give you the info you need for income tax.

capital gains tax is a separate issue, but there can't be any of that due, since you are only drawing £9600 per year, and the first c. £11,000 of capital gains per year - for each of you - is untaxed (because you can set it against your annual CGT exemption). (and - though there is no need to go into this - not all the £9600 will a capital gain anyway: some may be income, some may come from your ISAs (which are exempt from both income tax and CGT), and for anything that is from selling units in the joint "funds plan", the capital gain is not the whole sale proceeds, but just how much more the units were sold for than they were originally bought for.)

and, to be clear: the fact that you are "drawing" £9600 a year doesn't make it taxable. income can be taxable (see below), and capital gains can be taxable (see above), but "drawing" isn't. (note: for personal pensions, there is something slightly different, called "drawdown", which is taxable income - but that's not what you have here - this isn't technically a pension, even if it is funding your retirement.)

Consolidated Tax Voucher
Interest distributions received net of tax (basic rate)
Details for 2013/14
Authorised unit trusts and OEICS Amount after tax deducted= £54.69 Amount of tax deducted= £13.68 Gross amount before tax deducted = £68.37
Dividend distributions (10% tax rate)
Details for 2013/14
Authorised unit trusts and OEICS Dividend/distribution= £314.40 tax credit = £34.94 Dividend/distribution plus credit £349.34

OK, so in 2013/14, there was £68 of taxable interest, and £349 of taxable dividends - presumably between the 2 of you, so you each had about £34 of taxable interest and £174 of taxable dividends, a total of £208 extra taxable income.

however, on both the interest and the dividends, enough tax has been deducted at source to cover basic rate tax, so there is no further tax due unless either of you had a total income (after including the £208) which reached the higher rate band.

and in fact, if either of you was a non-taxpayer in 2013/14, you could reclaim the tax deducted from the interest, of c. £7 each.

(you couldn't reclaim any tax deducted from the dividends, because the "tax credit" on dividends was a strange quirk of the tax system - it's just theoretical, and no tax was actually deducted.)

Consolidated Tax Voucher
Interest distributions received net of tax (basic rate)
Details for 2014/15
Authorised unit trusts and OEICS Amount after tax deducted= £511.59 Amount of tax deducted= £127.91 Gross amount before tax deducted = £639.50
Dividend distributions (10% tax rate)
Details for 2014/15
Authorised unit trusts and OEICS Dividend/distribution= £1,236.68 tax credit = £137.45 Dividend/distribution plus credit £1,374.13

so in 2014/15, you each (after halving these figures) had about £319 of interest and £687 of dividends, a total of £1,006 of taxable income.

again, basic rate liability has been covered a source, so nothing more to pay unless you were into higher rate tax.

and again, if either of you was a non-taxpayer, you could reclaim the tax deducted from the interest, of c. £63 each.

Consolidated Tax Voucher
Interest distributions received net of tax (basic rate)
Details for 2015/16
Authorised unit trusts and OEICS Amount after tax deducted= £452.81 Amount of tax deducted= £108.21 Gross amount before tax deducted = £541.02
Dividend distributions (10% tax rate)
Details for 2015/16
Authorised unit trusts and OEICS Dividend/distribution= £1,406.17 tax credit = £156.25 Dividend/distribution plus credit £1,562.42

so for 2015/16, that comes to - for each of you - about £270 of interest and £781 of dividends, a total of £1,051 taxable income.

again, basic rate liability has been covered at source.

again, you may be able to reclaim the tax deducted from the interest, of about £54 each. and from 2015/16, that may apply even if your total taxable income (including the £1,051) is over the personal allowance, because there's a new 0% starting rate on up to £5,000 of interest.

so, unless i'm misinterpreting the info you've given, i think there's no tax liability, and you may have paid a little too much tax on interest. (which it may or may not be worth trying to recover.)

a similar result is likely for 2016/17. but from 2017/18 onwards, i read somewhere that tax will no longer be deducted at source on interest paid from unit trusts or OEICs, so hopefully you will then not get tax which you don't owe deducted at source.

DFChamp

grey_gym_sock wrote: »

these consolidated tax vouchers give you the info you need for income tax.

capital gains tax is a separate issue, but there can't be any of that due, since you are only drawing £9600 per year, and the first c. £11,000 of capital gains per year - for each of you - is untaxed (because you can set it against your annual CGT exemption). (and - though there is no need to go into this - not all the £9600 will a capital gain anyway: some may be income, some may come from your ISAs (which are exempt from both income tax and CGT), and for anything that is from selling units in the joint "funds plan", the capital gain is not the whole sale proceeds, but just how much more the units were sold for than they were originally bought for.)

and, to be clear: the fact that you are "drawing" £9600 a year doesn't make it taxable. income can be taxable (see below), and capital gains can be taxable (see above), but "drawing" isn't. (note: for personal pensions, there is something slightly different, called "drawdown", which is taxable income - but that's not what you have here - this isn't technically a pension, even if it is funding your retirement.)

OK, so in 2013/14, there was £68 of taxable interest, and £349 of taxable dividends - presumably between the 2 of you, so you each had about £34 of taxable interest and £174 of taxable dividends, a total of £208 extra taxable income.

however, on both the interest and the dividends, enough tax has been deducted at source to cover basic rate tax, so there is no further tax due unless either of you had a total income (after including the £208) which reached the higher rate band.

and in fact, if either of you was a non-taxpayer in 2013/14, you could reclaim the tax deducted from the interest, of c. £7 each.

(you couldn't reclaim any tax deducted from the dividends, because the "tax credit" on dividends was a strange quirk of the tax system - it's just theoretical, and no tax was actually deducted.)

so in 2014/15, you each (after halving these figures) had about £319 of interest and £687 of dividends, a total of £1,006 of taxable income.

again, basic rate liability has been covered a source, so nothing more to pay unless you were into higher rate tax.

and again, if either of you was a non-taxpayer, you could reclaim the tax deducted from the interest, of c. £63 each.

so for 2015/16, that comes to - for each of you - about £270 of interest and £781 of dividends, a total of £1,051 taxable income.

again, basic rate liability has been covered at source.

again, you may be able to reclaim the tax deducted from the interest, of about £54 each. and from 2015/16, that may apply even if your total taxable income (including the £1,051) is over the personal allowance, because there's a new 0% starting rate on up to £5,000 of interest.

so, unless i'm misinterpreting the info you've given, i think there's no tax liability, and you may have paid a little too much tax on interest. (which it may or may not be worth trying to recover.)

a similar result is likely for 2016/17. but from 2017/18 onwards, i read somewhere that tax will no longer be deducted at source on interest paid from unit trusts or OEICs, so hopefully you will then not get tax which you don't owe deducted at source.

That all sounds great Thank you.

I suppose though I wouldn't have had to consider any of this if only I'd moved all of our investments into ISAs when prompted to. If nothing else it would have meant that tax taken at source could have been investment instead.

I think I will be getting it moved pronto and then I will not be having these worries. Let this be a lesson to other naive investors.