MoneyMagpie

May 25

6 step guide to tax help for pensioners: self-assessment

Tax doesn’t have to be taxing…but we all know that it is, so with that in mind we’ve put together a simple six step guide just for pensioners trying to sort out what can be very complicated tax affairs.

This all started when we received the following query from Gord in our definitive guide to filling in your tax return.

Gord said:

“I am a pensioner, and trying to fill in a tax return. [over 10k bank interest] Presently paying tax on my 2010- 2011 state pension, through my company monthly pension. Trouble is on-line and paper form ask for 2009-10 pensions. Rang various numbers, and had various advice, such as “its not for producing a tax code” to put your “current state pension down” presumably meaning 10-11. Previously without filling out any form I always got the right code from Leeds tax office.”

Why do pensioners need to fill in a self-assessment form?

We asked Anita Monteith, from the ICAEW Tax Faculty, to have a look at this issue and here’s her response:

“I presume that Gord is trying to fill in a tax return for 2010. The purpose of the form is to make sure that he has paid the right amount of tax for 2009/10, which is why he needs to put down his 2009/10 pensions and also his bank interest received in that year,” says Anita.

self-assesment
There are various reasons someone might be asked to fill in a self-assessment (SA) return (more of that later) and in Gord’s case it’s likely to be because he has over £10,000 in bank interest.

“If he is only a basic rate taxpayer, then the PAYE code will have probably been right in previous years since the bank will have deducted all the tax due on his bank interest when making the payments. However, this is not necessarily true. It depends on his income and exactly how old he is. All this should be checked each year and certainly by completing a tax return this will happen,” adds Anita.

If, like Gord, you have to fill in a SA return this year and you’re feeling a bit flummoxed, make sure you read our step by step guide:

Step one: Allowances

The first thing to do is work out your personal allowance. Here are the rates for this tax year:

Tax year 2015-2016

Age Amount for 2014 – 2015 Amount for 2015 – 2016
Born after 5 April 1948 £10, £10,600
Born between 6 April 1938 and 5 April 1948 £10,500 £10,600
Born before 6 April 1938 £10,660 £10,660

 

If you’re born before 6 April 1948 your personal Allowance goes down by £1 for every £2 depending on your income and the tax year to a minimum Personal Allowance.

Tax year Income range Minimum personal allowance
2013 to 2014 between £26,100 and £100,000 £9,440
2014 to 2015 between £27,000 to £100,000 £10,000

If you become 65 or 75 during the tax year, you’ll get the allowance for that age group. Source: Gov.uk

“The two higher levels of allowance get reduced by £1 for every £2 that the total gross income exceeds £25,400 in a tax year. With bank interest, state and occupational pensions, you may be near to this limit so it needs checking. This is very hard for the PAYE system to get right ‘in year’ because no one knows exactly what their income will be on a real time basis,” says Anita.

Step Two: Understanding the tax system

The tax system in the UK only provides two ways of collecting tax – PAYE, and self assessment (SA). SA is only supposed to apply to “pensioners with more complex affairs” BUT, as always, things are never quite this simple so read on for more information about tax on your pension and savings.

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Step Three: Tax on your state pension

If your total income, including any other pensions you get, is less than your tax allowances then you won’t pay tax on your State Pension. But, if it exceeds this, you’ll have to pay it in one of the following ways:

–         If you have another pension, you’ll usually pay tax on your State Pension through your pension provider’s PAYE scheme.

–         If you don’t have another pension you’ll have to either pay tax through your employer’s PAYE scheme (if you’re working) or if you’re retired you’ll have to fill in the dreaded SA tax return.

Your PAYE coding notice (form P2)

If you’re receiving a State Pension, an occupational pension or you receive untaxed income, a coding notice will be normally issued in January or February before the next tax year begins in April.  This coding notice will have the tax year in a box at the top (which runs from 6 April to 5 April), your address and a phone number for your Contact Centre. It will also have your PAYE tax reference and your National Insurance number.

This form will also show you how your code number is worked out, after this calculation it should explain what your code number will be.

Step Four: Tax on your savings

self-assesmentMany examples of pensioners having to fill in SA forms are of those who invest in National Savings – these pay interest gross which means that the tax is not deducted at source and therefore cannot be coded out through the PAYE system. Whilst some of these are completely free of tax such as NS&I Savings Certificates, ISAs and Premium Bonds, others such as Income Bonds and the Investment Account are taxable but the interest is paid gross i.e. without the tax taken off.

Basic rate taxpayers will therefore have to pay tax at 20% on the amount they receive for that tax year. However, if all their other income is taxed before they receive it, they will only need to complete a SA return if the untaxed income exceeds £2,500.

Step Five: Why do I need to complete a SA tax return?

You may need to complete a SA return if you have:

–         Untaxed income, for example, if you have National Savings products that are paid gross (without tax deducted) or income from renting property (which is also not taxed when you receive it)

–         Savings and investment income of £10,600 or more before tax

–         Annual income of £100,000 or more before tax

–         Expenses you want to claim for over £2,500

–         If you have given away/sold assets worth over £40,400 (for 2010/11 tax year)

–         If you receive regular income from a trust/estate of a deceased person, or taxable foreign income

What about the Short Tax Return?

If you have simple tax affairs – a state pension, an occupational pension and, say, a little income from property – you may be able to receive the Short Tax Return instead of the full whack.

This is only four pages long (a third of the full-sized form) and should be much easier to complete. This must be filed along with the deadlines of the full SA return.

Step Six: Get some help

self-assesmentIf you’re confused by your tax affairs (and who isn’t?) the important thing is to remember you’re not alone. Tax is an endlessly confusing issue for everyone and particularly for pensioners trying to deal with tax on various streams of income.

That’s why Tax Help for Older People (TOP) has been set up as a charitable service to provide free advice on personal tax to older people on low incomes who could not otherwise afford professional help. You can phone their helpline on 0845 601 3321 or visit their website for more information and some useful phone numbers.

Also, the HMRC’s website is full of useful information so make sure you read it through.

 

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WHAT DO YOU THINK?

10 thoughts on 6 step guide to tax help for pensioners: self-assessment

  1. i am 65yrs and recieving state pension. i also have a very small pension and a small income.
    I need help to fill in my assessment as i have been paying tax when i shoulnt have been.
    how can i get help to fill it in.

    Reply
    1. Considering you have a small private pension, you shouldn’t fill out form P50, as this is just for those who only have a state pension. You need to either contact HMRC yourself, or to go through a tax advisor. You can write to HMRC at HM Revenue & Customs, Self Assessment, PO Box 4000, Cardiff, CF14 8HR. Explain the situation and include copies of all relevant paperwork, such as any statements from your pension provider or former employer, and anything from HMRC with a tax code on it. HMRC will then process this information, and if you have been taxed using the wrong tax code, they will send you a cheque to reimburse you. If you’d rather get some help from a tax advisor, you can find one near you though the unbiased.co.uk website. Make sure you agree a fixed fee in advance for the entirety of the work to be done. This should be a straightforward matter, so you don’t want to end up with a big bill.

      Reply
  2. At what age will I cease to be required to file a SA return?
    I can cope at the moment, but who knows what the next 5 years will bring, and I certainly cannot afford the services of an accountant.

    Reply
  3. Can anyone give me the reference in legislation which says a self assessment return must be done if investment income is over £10,000?
    My parents have always done R40s to reclaim some of the tax deducted from interest (their pension income is well below the tax thresholds) but this year my father has been asked to do a tax return. My mother’s refund was paid out on the R40 as usual, even though her investment income is actually a little higher than my father’s. I queried with the Revenue to check if my father really did need to do a tax return, rather than a R40, and was told that legislation demanded it.
    But I wonder if this is so, or whether this is just the Revenue’s current interpretation of the legislation.

    Reply
  4. Is it possible to print this article off without all the extra bits. I have sight problems so find I can read things better byt printing them off and then reading them. When I tried pringont it off it was 9 pages but I am sure the article itself is only about 3 – 4 pages. As you can tell me I am not particularly computer literate.

    Gill

    Reply
    1. Hi Gill,

      Try printfriendly./ – it lets you print off webpages without all the extra stuff. You can also make webpage text appear bigger while you’re online – see: rnib.org.uk/aboutus/aboutthiswebsite/help/Pages/webbrowsers.aspx

      Reply
  5. I could not read a lot of the above article on Tax Help for Pensionsers because of your various adverts down the right hand side obscuring it!! Could you submit a copy that we can read please. Thank you.

    Reply
    1. Hello Mrs Hollingworth. It looks like you are using an old browser to read the page. Do update the version of the browser you are using (maybe it’s Mozilla or Internet Explorer) and you will find that the page (and pages on other websites) will be much clearer.

      Reply
    1. You’ve just done it! Feel free to comment on any of the articles or you could use our contact form – just click on the word ‘Contact’ at the bottom of this page and that will take you to it.

      Reply

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