How to Reduce Tax Burden for Retirees

Jellyknee1

I am 70 and a pensioner receiving state and private pensions. My annual income from the pensions and savings is above the Personal allowance, so pay 20% above this allowance. I have worked for 42 years in one company and have never filled a tax return form. My wife’s marriage allowance has been transferred to me as she was earning below her personal allowance. I have received an HMRC letter saying I have paid too little tax. I assume HMRC has received my savings income information from my banks to calculate the extra tax I owe HMRC. There is no breakdown given, so I do not know if this is correct. Can I request a breakdown from HMRC? Most of our accounts are in joint names. I believe the bank should also inform its customers of what information it gives to HMRC as they did when the tax were deducted from the saving. This would save lots of valuable time asking the banks and HMRC. There is nothing to hide, but want to make sure I am paying the correct tax. HMRC does make mistakes. 

Further, my wife who is 63, did work part-time for 31 years and paid into the company pension. Now she is not working and has no income apart from PIP due to poor health. She has no tax code. To reduce my tax, what capital can I transfer to my wife? Should she start withdrawing her company pension (lump sum and reduced pension) before her state pension age is 67? We both have a small amount of SIPP investments. 

Thanks

eskbanker

Jellyknee1 said:

I have received an HMRC letter saying I have paid too little tax. I assume HMRC has received my savings income information from my banks to calculate the extra tax I owe HMRC. There is no breakdown given, so I do not know if this is correct. Can I request a breakdown from HMRC? Most of our accounts are in joint names. I believe the bank should also inform its customers of what information it gives to HMRC as they did when the tax were deducted from the saving. This would save lots of valuable time asking the banks and HMRC. There is nothing to hide, but want to make sure I am paying the correct tax. HMRC does make mistakes. 

Yes, you can ask HMRC for a breakdown, and no, banks aren't obliged to produce annual tax certificates as they used to when deducting tax.  However, they'll usually produce statements and/or direct online access - are you saying that you have savings accounts where you can't identify how much interest was paid during 2023/24?

Jellyknee1 said:

Further, my wife who is 63, did work part-time for 31 years and paid into the company pension. Now she is not working and has no income apart from PIP due to poor health. She has no tax code. To reduce my tax, what capital can I transfer to my wife? Should she start withdrawing her company pension (lump sum and reduced pension) before her state pension age is 67? We both have a small amount of SIPP investments. 

Tax codes are just a mechanism to drive PAYE deductions, so those without such income don't have codes.  It can be sensible to withdraw money from pensions to generate income to avoid the annual personal allowance being 'wasted', but only if doing so doesn't prejudice longer term plans for those funds.

Keep_pedalling

Having all your savings in joint accounts suggests you have failed to take advantage of your ISA allowances for decades, which is a big trick you have missed. You can transfer as much as you like to your wife you reduce your tax burden.

SVaz

She needs to use her personal tax allowance to get as much cash out of her pension as she can before she starts getting her State Pension.
She will be able to take £15000 as UFPLS payments and pay no tax as 25% is tax free and £11250 is within her personal allowance.
It’s what my wife is doing right now and for the next 5 years, emptying her personal pension into both a cash ISA and a Stocks ISA , done by the time she’s 67 . 

 That means completely tax free income and the added benefit of me inheriting the cash income tax free if she should die. 

Jellyknee1

eskbanker said:

Jellyknee1 said:

I have received an HMRC letter saying I have paid too little tax. I assume HMRC has received my savings income information from my banks to calculate the extra tax I owe HMRC. There is no breakdown given, so I do not know if this is correct. Can I request a breakdown from HMRC? Most of our accounts are in joint names. I believe the bank should also inform its customers of what information it gives to HMRC as they did when the tax were deducted from the saving. This would save lots of valuable time asking the banks and HMRC. There is nothing to hide, but want to make sure I am paying the correct tax. HMRC does make mistakes. 

Yes, you can ask HMRC for a breakdown, and no, banks aren't obliged to produce annual tax certificates as they used to when deducting tax.  However, they'll usually produce statements and/or direct online access - are you saying that you have savings accounts where you can't identify how much interest was paid during 2023/24?

Jellyknee1 said:

Further, my wife who is 63, did work part-time for 31 years and paid into the company pension. Now she is not working and has no income apart from PIP due to poor health. She has no tax code. To reduce my tax, what capital can I transfer to my wife? Should she start withdrawing her company pension (lump sum and reduced pension) before her state pension age is 67? We both have a small amount of SIPP investments. 

Tax codes are just a mechanism to drive PAYE deductions, so those without such income don't have codes.  It can be sensible to withdraw money from pensions to generate income to avoid the annual personal allowance being 'wasted', but only if doing so doesn't prejudice longer term plans for those funds.

Thanks for the information. I do receive statements with interest paid. I would have thought the bank could give one annual interest figure for each account rather than me going through each statement. I am looking into what effect it will have on her pension income after taking a 25% lump sum.

Jellyknee1

Keep_pedalling said:

Having all your savings in joint accounts suggests you have failed to take advantage of your ISA allowances for decades, which is a big trick you have missed. You can transfer as much as you like to your wife you reduce your tax burden.

Thanks, we have ISAs but do not invest every year. I thought we could not draw from the ISA account without penalties, but I was wrong. 

Jellyknee1

SVaz said:

She needs to use her personal tax allowance to get as much cash out of her pension as she can before she starts getting her State Pension.
She will be able to take £15000 as UFPLS payments and pay no tax as 25% is tax free and £11250 is within her personal allowance.
It’s what my wife is doing right now and for the next 5 years, emptying her personal pension into both a cash ISA and a Stocks ISA , done by the time she’s 67 . 

 That means completely tax free income and the added benefit of me inheriting the cash income tax free if she should die. 

Thanks for the advice. my wife has a very small pension as she only worked a few hours a week, so took out SIPP for her, just in case I die before her then she will only receive 50% of my private pension. I will look into what you are doing regarding your wife's pension.

eskbanker

Jellyknee1 said:
I do receive statements with interest paid. I would have thought the bank could give one annual interest figure for each account rather than me going through each statement.

If you access the accounts online then you may find that such annual statements are available to download, or alternatively you can usually extract the relevant figures easily and paste them into a spreadsheet to tot up.