K code for tax

Dustykitten

Could somebody advise me on my mothers tax code.

She is 65 and receives
state pension
small private pension (not taxed at source)
savings interest (not taxed at source)
small annuity (taxed at source)

She has been issued with a new K code and I understand that this is because her income is higher than her tax due. This has reduced the amount she gets monthly from the annuity.

As she also gets a payment from a trust (40% tax credit) she ended up with a tax rebate.

Would she be better to change the savings to be taxed at source and pay less tax on her annuity or is it fine the way it is and just swings and roundabouts and will get straightended out once a year.

Thanks for any advice Dusty.

jem16

Personally I would prefer to have the savings income taxed at source and receive more income monthly from the annuity. However it is all swings and roundabouts in the end.

Is her total income more than £7550? If so why is she receiving her savings interest gross?

Dustykitten

Thanks Jem. Yes her income is above £7550. The savings accounts have been in place quite a while, before she was widowed and receiving the annuity etc. At that time the interest was below her allowance so no tax was due.

jem16

She should now be advising the banks that she is no longer able to claim for gross interest now. The R85 states that you must declare yourself to be a non-taxpayer which is not the case now.

After she has done that she should inform HMRC and they can remove the savings income from her tax coding notice.

Dustykitten

Thanks for that Jem. I am seeing her tomorrow so I'll draft a letter up. Funny how the HMRC don't tell you to do that and just change your code. Do you have any idea how long it takes them to issue a new code once the banks have been informed?

jem16

They should change it right away if you tell them you no longer want savings taxed through the tax code. You just need to phone HMRC.

Might be best to see when the banks will let the change take effect from.

Mikeyorks

jem16 wrote: »

Might be best to see when the banks will let the change take effect from.

That's a very relevant point. Some Banks etc will retrospectively apply a change in R85 status for the whole of the tax year - some won't. I did find a list on the HMRC site some time ago that listed the ones who 'do' and the 'dont's. But it's one of those you find by accident - never by design. So you need to ask the Bank how they'll play it?

Funny how the HMRC don't tell you to do that

.... as Jem implied earlier - there's a declaration associated with the R85 that does make clear you have to withdraw the R85 if your status changes.

Mikeyorks

Dustykitten wrote: »

... K code and I understand that this is because her income is higher than her tax due.

It's actually because her deductions (state pension / interest etc) exceed her allowances. Therefore her allowances are actually negative .... and the 'K' indicates that.

http://www.hmrc.gov.uk/pensioners/understandingyourtax.htm#3

Dustykitten

Thanks for all you replies, we have sent the letters off tothe BS to revoke the R85 and asked them to inform us from which date this takes place. We will also inform the tax office. I understand that it will still be a K code - thanks for the links - but the annuity tax will be less.