HMRC has flagged up to pension schemes that some employees may unwittingly be failing to report all their pension contributions on their tax return. The oversight could result in large tax bills in due course when the taxman catches up with them, warns Steve Webb, director of policy at Royal London.
In these times of momentous political upheaval, old certainties suddenly look less sure. Just ask Christian Schultz, chief UK economist at Citibank, and Oliver Harvey, head of Brexit research and UK macro strategy at Deutsche Bank.
The duo made headlines in September with pronouncements that a Jeremy Corbyn-led Labour government could actually be a safe option for the UK – safer than a no-deal Brexit for sure, and maybe even safer than a Conservative government led by a fiscally profligate Boris Johnson.
There’s a raft of different tax breaks on offer in the UK, but a few are often overlooked by savers and investors. Using them correctly means you can reduce your tax bill and keep as much of your investment returns as possible. Here is a guide to some of the possible tips and tricks you could use (but speak to a financial adviser for proper tax planning advice).
In 2011, my civil partner inherited his mother’s house, which had a probate value of £89,000. In December 2018, we transferred the house into joint ownership between my partner and me, using a solicitor. We have just sold the property for £125,000. The house was rented between being inherited and being sold. We spent about £3,000 on central heating and electric upgrades when we acquired it.
I retired a few years ago and immediately started drawing a defined benefit pension. My only forms of income now are the pension, company dividends and savings interest. When I came to fill out my tax return using the HMRC website, I wondered if it might be advantageous to invest my savings into a new pension.
Playing with the tax return form, it showed I could reduce my tax liability. However, it seems you can only use “relevant earnings” to be able to get tax relief. Pension payments, dividends and savings are not relevant earnings. I’m not getting any other monies.
Income tax rules
The income tax you must pay varies according to your income in a given tax year, which runs from 6 April to 5 April. Everyone receives a personal allowance – £12,500 for the 2019/20 tax year. You pay no tax on income up to this threshold.
I am resident in Scotland, so I’m subject to Scottish tax rates. I have a state pension, an armed forces pension and dividend income. Can you please advise me whether, as a taxpayer in Scotland, I must pay Scottish rates on my total income or – as a friend suggested – Scottish rates on my pension income and English rates on my dividends?
Garry Barnett, by email
If painful experience has taught us to take politicians’ pre-election promises with a pinch of salt, what do we make of the pledges made by party leadership candidates, which aren’t even recorded for posterity in a manifesto we can scrutinise later on? Bear that thought in mind this autumn as you ponder what impact prime minister Boris Johnson might have on your finances.
I plan to gift £200,000 to my 50-year-old daughter, who has learning difficulties and no income. I propose to invest it for her in the City of London investment trust through a Halifax trading account at a platform fee cost of £12.50 a year. The dividends should generate about £8,000 a year for her bank account, which would cover the cost of a leasehold studio flat and living expenses. My wife and I are 74 and own other assets that will attract inheritance tax. Will the £200,000 gift be a potentially exempt transfer? Or will our daughter have to pay tax on the gift?
As the new tax year rolls around, here are the major changes that may hit your pocket from April 6 for the 2019-2020 tax year.
The personal allowance, or the amount you can earn tax-free before you start paying income tax, will rise by £650 to £12,500. Pensioners won’t receive a higher personal allowance than other age groups.