Before you plan your retirement, you will need to appreciate how the money you have in your pension pot will be used to provide you with an income when you retire. One option to choose is to invest most of your pension in an annuity, which pays you a regular income throughout your retirement years. An annuity is purchased using the lump sum from your pension or savings, which provides you with a guaranteed income for the rest of your life. The size of the income you receive depends on the size of your pension fund, your age, your gender and your health.

Decision making
As you near retirement, your pension fund provider will inform you of your pension fund total and offer you a quotation based on the size of your fund. Generally, most people purchase an annuity by the time they reach age 75. Choosing an annuity will depend largely on your financial circumstances, the value of your pension or pensions, your retirement expectations and, possibly, on your health or the health of your dependants. You can also decide whether you would prefer a level annuity or an escalating annuity. Level annuities pay you a fixed level of income each year, while an escalating annuity increases each year in line with inflation or at some fixed rate. The income generated from an escalating annuity is usually significantly lower in the first few years than you would expect to receive from a level annuity. You can also decide whether you want your income to be paid for a guarantee period, perhaps 5 or 10 years, but this will also reduce the amount of initial income payable.

Enhanced annuity
You may qualify for an enhanced annuity or an impaired life annuity, if you suffer from poor health. These usually pay a higher income amount if your health problems (such as high blood pressure, kidney problems or diabetes) could potentially reduce your lifespan. Smokers or people diagnosed with obesity may also be able to receive an ‘enhanced annuity’.

Shopping around
You can purchase your annuity from any provider, this means it need not be from the company you had your pension plan with. Be aware that the amount of income you receive from your annuity can vary between different insurance companies, so it is essential to receive comparisons before making your final decision. 

Open market option
Pension fund providers are now legally obliged to inform you of your rights to choose an annuity. You can decide to take the ‘open market’ option providing that you have not already taken any benefits from your pension or agreed an existing annuity with your pension provider. Before you take out your annuity, you can also decide to withdraw a tax-free lump sum of up to 25 per cent of the total value of your pension, known as a Pension Commencement Lump Sum. 

What to do
When annuity rates are falling it might be tempting to hold off buying an annuity, until rates increase. This may not necessarily be the best course of action and should you decide to delay your purchase, rates could fall even further. In addition, every month without an annuity is a month without income and this lost income may not be recovered in the future.

For adcive contact me on 01896 757734 or email info@fraserjamespartnership.co.uk

Fraser Brydon – MoneyMatters

People aged between 16 and 18 can open two cash ISAs in the same tax year, which is an occurrence that is not allowed for anyone else. 16 year olds are eligible to open their own adult cash ISA, worth £5,340 (or £5,640 next tax year), as well as saving up to £3,600 in a Junior ISA (JISA). They can save almost £10,000 each tax year in cash ISAs. Allowing children aged 16 and 17 to have both a JISA and an adult cash ISA is something that has not been widely publicised but is something that, if possible, families should make the most of.

The full £3,600 JISA amount can be saved in cash or divided between cash and stocks and shares, but whilst children can open an adult cash ISA at the age of 16, they won’t be able to open a stocks and shares adult ISA until they are 18 years old. The return is quite nice when a young adult takes advantage of both this and next year’s full cash ISA allowance, they would have saved an extra £10,980. If that £10,980 were to grow at an average tax-free interest rate of 4 per cent, it would add about a further £18,000 to the overall ISA fund around the age of 30, without the inclusion of the value of the JISA fund, which when added would make a very tidy return.

The value of your investment and the income from it can go down as well as up and you may not get back the original amount invested. Past performance is not a guide to future performance.

For advice contact me on 01896 757734 or email info@fraserjamespartnership.co.uk

Fraser Brydon – MoneyMatters

An ISA is another form of a tax efficient wrapper in which you can place investments to give them tax efficient status. For the tax year 2011/2012 an individual’s total annual allowance limit to anISAis £10,680, of which a maximum of £5,340 can be held in cash. These figures are increasing in 2012/13 to £11,280 and £5,640 respectively. Subject to the overall limits, you can split yourISAbetween the following:

STOCKS AND SHARES
You can hold stocks and shares and managed investment funds within an ISA. It is possible to invest up to £10,680 into stocks and shares inside an ISA in the tax year 2011/2012.

CASH
You can as an option hold a proportion of your ISA allowance in cash, which will earn tax-free interest. You are able to invest £5,340 of that annual allowance into a cash deposit account in the tax year 2011/2012. As long as you do not exceed the maximum ISA allowances in any one tax year, you can split your ISA investments. For instance, in the 2011/2012 tax year, you could invest just £2,000 into a cash ISA and put the remaining £8,680 allowance into a dedicated investment ISA that may provide higher returns than a Cash ISA over the medium to long term. You only have one ISA allowance available each tax year (6th April to the following 5^th April). Subject to the rules above, you can however split your ISA allowance between two different providers, such as a Cash ISA with one provider and an Investment ISA with another. With effect from April 2011, the Government confirmed that each tax year, it is their intention to raise the amount that individuals can put in to their annual ISA allowance by inflation each April, therefore the limits for 2012/13 are £5,640 into a cashISA with the remainder up to the total allowance of £11,280 available to invest in an investment ISA.

Mini and Maxi ISA?
Since April 2008, the terms Mini and Maxi ISAs became technically incorrect. Over previous years, many people used their ISA allowances by splitting the amount they invested in to two different parts as a Mini cash ISA allowance with their bank or building society and a Mini stocks and shares ISA allowance with an investment company. The Mini ISA was only allowed to hold one of the two components (shares or cash). As a consequence, many investors would tend to invest the two components separately, with different providers. This meant that they would often end up with two Mini ISAs in a tax year rather than one Maxi ISA.

Tax position of ISAs?
Investments are free from capital gains tax, but investors no longer receive the 10 per cent tax credit on dividends from UK equities. This was removed from April 2004, so now such dividends are fully taxable from this date, although there will be no further tax liabilities, even for higher rate taxpayers. However, investments in corporate bonds and gilts are free from tax and are able to reclaim the full 20 per cent tax credit.

Why invest?
The stocks and shares element of the ISA will allow you to take advantage of the reduction in risk by pooled resourced company share investing. The stocks and shares element of an ISA can be used to invest in many different types of investment fund including unit trusts, investment trusts and OEICS. Such funds are actively managed by a professional fund manger who will buy and sell shares on your behalf, with the aim of achieving the maximum possible return on your investment. In the past, over the medium to long term, this type of investment has produced excellent levels of growth, although it is important to remember that past performance is no guarantee for the future, and the value of such investments can fall as well as rise.

The value of your investment and the income from it can go down as well as up and you may not get back the original amount invested. Past performance is not a reliable indicator for future results. Please contact us for further information or if you are in any doubt as to the suitability of an investment

For advice contact me on 01896 757734 or email info@fraserjamespartnership.co.uk

Fraser Brydon – MoneyMatters

We all want to protect our family from financial hardship, so it is important to know which products to choose, including the most suitable sum assured, premium, terms and payment provisions.

 What are the options?
The cheapest, simplest form of life assurance is term assurance. There is no investment element and it pays out a lump sum if you die within a specified period. Types of term assurance are:

Level term assurance
Which offers the same payout throughout the life of the policy, your dependants receive the same amount whether you died on the first day after taking the policy out or the final day before it expired. This is normally used alongside an interest-only mortgage, where the debt has to be paid off only on the last day of the mortgage term. 

Decreasing term assurance
Here the payout reduces by a fixed amount every year, finally ending up at zero by the end of the term. Because the level of cover decreases during the term, premiums on this type of insurance are lower than on level policies. This cover is often bought with repayment mortgages, where the debt falls during the mortgage term. 

Increasing term assurance
The potential payout increases by a small amount each year. This is a useful way of protecting the initial amount against inflation.

 Convertible term assurance
A more flexible policy that allows the option of switching in the future to another type of life assurance, such as a ‘whole-oflife’ or endowment policy, without having to submit any further medical evidence. 

Family income benefit
This offers the policyholder’s dependants a regular income from the date of death until the end of the policy term, instead of any lump sum payment. 

Lifetime protection
A “whole-of-life” assurance policy is designed to provide cover throughout a person’s lifetime. The policy only pays out once the policyholder dies, providing the policyholder’s dependants with a tax free lump sum. Depending on the individual policy, policyholders may have to continue contributing right up until they die, or they may be able to stop paying in once they reach a stated age, even though the cover continues until they die. There are policies that also offer cover for additional benefits, such as a lump sum that is payable if the policyholder becomes disabled or develops a specified illness. Whole-of-life assurance policies are often reviewable, usually after ten years, at which point the insurance company may decide to increase the premiums or reduce the cover it provides.

For advice contact me on 01896 757734 or email info@fraserjamespartnership.co.uk

Fraser Brydon – MoneyMatters

A higher rate tax payer does not receive tax relief automatically on their personal pension contributions, they have to claim it. This means that someone earning more than £42,475 in the current financial year could potentially be losing a fifth of the value of their pension if they are not actively claiming back higher rate tax relief on their contributions. Claiming higher rate tax relief on personal pension contributions is considered to be the single most important relief you can claim, yet hundreds of thousands could be missing out. To obtain your additional tax relief you must file a tax return or get HM Revenue & Customs to change your tax code. To do this, you have to contact your local tax office.

Claiming your tax back
If you pay income tax on your earnings before any personal pension contributions, your pension provider claims tax back from the government at the basic rate of 20 per cent. In practice, this means that for every £80 you pay into your personal pension, you receive £100 invested in your pension fund. If you are a higher rate tax payer paying 40 per cent, you may able to claim an additional tax relief. Depending on how much you earn over the higher rate tax band, any additional tax relief could be up to a maximum of 20 per cent, on top of the basic rate of 20 per cent.

Additional rate tax payers
As from 6 April 2011, if you are an additional rate tax payer, paying 50 per cent, you may also be able to claim additional tax relief at your highest rate. As with 40 per cent tax payers, this depends on how much you earn over the higher rate tax band and your level of contribution, any additional rate tax relief could be up to a maximum of 30 per cent, on top of the basic rate of 20 per cent.

The advantage of full tax relief straight
If you are employed, your employer will take occupational pension contributions from your pay before deducting tax (excluding National Insurance contributions). You only pay tax on the balance, so whether you pay tax at basic, higher or additional rate you receive the full relief straight away.

 For advice contact me on 01896 757734 or email info@fraserjamespartnership.co.uk

Fraser Brydon – MoneyMatters

Everyone faces a race against the clock to make the most out of limited tax concessions before they vanish at the end of the current tax year on April 5.

Asset switching
Husbands and wives should consider switching assets between each other. Aim to put income in the name of the person with the lowest income tax rate or who has some unused personal allowance.

Maximise your cash ISAs
Cash ISAs are where to start for tax-free saving. They are deposit accounts where all interest is paid free from tax. Savers can contribute a maximum of £5,340 this tax year, rising to £5,640 fromApril 6 2012.

 Claim your tax back
The Government pays tax credits to help working couples and families, depending on your income each tax year. You should inform HM Revenue & Customs promptly if that income changes. The value of the credits can rise if your income has gone down for whatever reason and there is no need to wait for the end of the tax year or to be sent a renewal form. This is one of the rare occasions where it is worth getting in touch with HMRC quickly. Also note, rises of income of less than £10,000 will not affect your credits in the current tax year. But prompt notification makes any overpayment of credits next tax year less likely.

Equity ISAs
For those not adverse to risk, stocks and shares ISAs are a good area of investment. These can be used to shelter funds investing in shares, bonds and property. There is no further income tax to pay on any dividends or payments from funds held in anISA. Any profits when the investments are eventually sold are free from capital gains tax. The maximum that can be saved into a stocks and sharesISAis £10,680 this tax year, rising to £11,280 fromApril 6 2012.

Redundancy
The first £30,000 of any redundancy settlement is tax-free, but the balance is taxed as income. If you are a higher-rate taxpayer, or the redundancy payment moves you into a higher tax band, discuss if you can get the payment structured so that part of the payment is deferred into the next tax year. Also, depending on your employment outlook and age, it may also be beneficial to have a portion of any redundancy paid into your pension.

Use your CGT exemption
Capital gains tax is charged when you sell assets, including shares and property, for a profit. It is levied at 18 per cent for basic rate taxpayers, rising to 28 per cent if you pay income tax at 40 or 50 per cent. The annual allowance provides the first £10,600 of any profits tax free. The CGT exemption is one area of tax planning people forget or fail to use fully. People, who may hold or have inherited substantial assets, should think about selling a portion every tax year to bank profits and use up the CGT allowance.

Pension boosting
Contributions into a pension qualify for tax relief. This boosts the value of every £1 of taxed income that you pay in by 25p for basic rate taxpayers. Higher rate taxpayers can claim back even more. There is a £50,000 annual limit for pension contributions, though you need to have earned at least this sum during the year. Some bigger earners, or those who have been made redundant, may be able to invest more, and you can carry forward any unused allowances from the three previous tax years in some circumstances.

Children
This is the first tax season when the whole family can top up anISA. The JuniorISA, launched in November, allows family or friends to save up to £3,600 each tax year into a tax-free account on behalf of children. However, if you or your child was eligible for a Child Trust fund then you cannot invest in a JuniorISA. Like the adultISA, the ‘JISA’ can be held in cash or invested in stocks and shares. The account is open to anyone aged 17 or under who does not already have a Child Trust Fund (CTF). Cash cannot be withdrawn until the child turns 18.

Gift away
The first £325,000 of any estate is tax-free and for married couples / civil partnerships the first £650,000 is tax free. Beyond this,IHTcan be levied at 40 per cent, taking a large bite out of a lifetime’s work. However, making annual gifts to family or friends can reduce the potential for anIHTbill. Each person can give up to £3,000 per tax year, plus as many gifts as they like worth up to £250 to different individuals. None of these will affect the £325,000 nil-rate band. You can still give away bigger sums, however if you die within seven years of making these gifts they will be treated as part of your estate and may be subject toIHT.

Protect savings
The Government is reducing the pension lifetime allowance on April 6 from £1.8million to £1.5million. Final salary pensions are valued at the rate of 20 times annual income. Meaning someone who is already entitled to a pension of £75,000 a year or more could have an issue. Pensions are tested at retirement. Those over this limit will be taxed at 55 per cent, but anyone who thinks they might break through the new allowance can protect their fund if they register with the Revenue before the end of the current tax year.

The value of your investment and the income from it can go down as well as up and you may not get back the original amount invested. Past performance is not a guide to future performance.

For advice contact me on 01896 757734 or email info@fraserjamespartnership.co.uk

Fraser Brydon – MoneyMatters

Use your ISA allowances
ISAs should be at the top of most people’s savings and investment list, these are the reasons why: Tax free growth – no capital gains tax

• No need to record your ISA income or profits on your tax return
• Tax free income on corporate bonds and other fixed interest stocks and no further tax on everything else
• The income has no impact on age related allowances making it perfect for supplementing pension income in retirment 
• The allowance will increase in the 2012/13 tax year by £600, therefore the overall personal allowance will be £11,280 in total, £5,640 can be invested into a cash ISA. The whole allowance can be put into a Stocks and Shares ISA, or the remaining £5,640, if wishing to invest in both. If you are unhappy where you are invested you can transfer your ISA to another provider.

Use your pensions allowance
Almost everyone can pay into a pension and obtain tax relief on the contributions, even if you are a non-earner. This means a £1,000 contribution costs just £800, the balance being paid by the Government. Most higher rate taxpayers can reclaim up to a further £200 tax relief via their tax returns. The current tax rules limit the amount that can be contributed to registered pension schemes each year as taxrelieved contributions to £50,000 or 100 per cent of UK taxable earnings, whichever is lower. A new three year “carry forward” of unused annual allowance was introduced from 2011/12. Initially you will be able to carry forward unused allowance from 2008/09, 2009/10 and 2010/11, provided you were a member of any registered scheme during the relevant year. The exercise will assume that a £50,000 annual allowance applied for those years (rather than the actual figure) and use a notional carry forward calculation if total contributions exceeded £50,000 during a tax year. 

Check your tax code
Having the wrong tax code can be costly. Many pensioners can be on the wrong code as they have not been moved on to the higher personal allowances that kick in at 65 and 75. Savers and investors should also check that HM Revenue & Customs isn’t deducting too much tax in respect of interest and dividends. When you receive a coding notice, cross check against any accompanying notes.

Inheritance tax (IHT)
Every tax year you can ‘gift’ £3,000 which will not count towards your total estate and if you do not use the full exemption in one year, you can carry it forward but for one year only. Gifts of up to £250 a person are also exempt, but you are not permitted to use the two together. If a gift is regular, comes out of your income but does not impact upon your standard of living, any amount can be given away and ignored for IHT. You will need to keep full records of any gifts made, to assist with probate. You cannot use your ‘annual exemption’ and your ‘small gifts exemption’ together to give someone £3,250, but you can use your ‘annual exemption’ with any other exemption, such as  the ‘wedding/civil partnership ceremony gift exemption’. Ie: If one of your  children marries or forms a civil partnership you can give them £5,000 under the wedding/civil partnership gift exemption and £3,000 under the annual exemption – a total of £8,000. (It’s not just parents who get a gift exemption on marriage, it can be used by others, including Grandparents, but the limits are lower. Check www.hmrc.gov.uk for the current limits).

Capital gains tax (CGT)
You could make use of the capital gains tax annual exemption for 2011/12 of £10,600 for each individual, including your children. For example, it may be worth selling shares if they have delivered losses because these can be set against gains made on other assets this year. The tax on profits from the sale of a buy-to-let could be cancelled out by losses on equities. If loss making disposals are not made until later they cannot be carried back against gains in previous years. Main residence relief If you own more than one residence, you can elect which one you want to be treated as your principal private residence (PPR) for CGT purposes.

All of the tax benefits quoted above can be changed and the exact benefit will depend on your circumstances.

Some aspects of Tax Planning are not regulated by the Financial Services Authority.

For advice contact me on 01896 757734 or email: info@fraserjamespartnership.co.uk

Fraser Brydon – MoneyMatters

When going through a divorce, the Court is required to take your pension rights into account, as this is seen as a shared asset.

To make the correct decisions you will need to know what you and your former spouse’s pensions are approximately worth.  This will mean that both of you will need to ask your pension providers for valuations of your own pension pots.  You will need to understand the implications of each of these three ways of taking pension rights into account in a divorce settlement.  You need to be very aware that transferring from a final salary or career average scheme to a money purchase scheme (or personal pension plan) carries a number of risks.  You should consider taking professional financial advice before sharing a pension so that you understand whether you are getting value for money.  If the Court so wishes, it can issue a Court Order to occupational pension schemes, personal pension schemes, retirement annuity contracts, and Section 32 Buy-out plans to investigate further.  The Court can also consider pension plans that you and your former spouse are currently paying into, plans that you have preserved in the past and plans that are currently paying you an income.  Arrangements outside the scope of the legislative provisions covering divorce are state benefits, Equivalent Pension Benefits earned between 1961 and 1975, and any pension rights a person is in receipt of by virtue of being a widow, widower, or dependant.

The Three Options
Pension Offsetting
All the couple’s assets are taken into account and pension benefits are offset against other assets, like the matrimonial home.  The party with the pension rights keeps them for him/herself and the other party is given the benefit of other assets, such as the right to live in the matrimonial home.  It can be difficult to achieve a fair share of a couple’s total assets by offsetting a pension pot against other assets.  This may be because the pension pot is by far the greater in value.  Also pension values tend to fluctuate more than property values.  If offsetting is not deemed fair then one or another of the alternative options is likely to be used.

Earmarking
The pension scheme, on instruction from the Court, pays a specified amount of the member’s pension and/or lump sum (in England, Wales and Northern Ireland) or a specified amount of the member’s lump sum only (in Scotland) to the ex-spouse.  The amount is specified at the time of the divorce but as with all periodical payment orders, either party can apply to the Court to have the amount varied.  The payment is made when the spouse with the pension pot retires, or when they die.  The downside with Earmarking is that it does not achieve a ‘clean break’ and does not enable the ex-spouse to receive retirement income until the spouse with the pension pot retires.  An additional drawback is that if the Divorce Order is for the regular payment of a pension, those payments will stop when the spouse with the pension pot dies or if the party receiving the earmarked pension remarries.

Pension Sharing
The pension sharing option is to separate the ex-spouse’s benefit entitlement, as specified in the Court Order, from the pension scheme member’s, so that there is a ‘clean break’.  A Pension Sharing Order is issued that creates a Pension Credit Member (the ex-spouse) and a Pension Debit Member (the member).  The Pension Credit is based on the member’s Cash Equivalent Transfer Value (CETV).  The Credit will be a percentage of the CETV, not a fixed sum of money.  The CETV is calculated as of the day before the Pension Sharing Order takes effect, so it can be higher or lower than the value disclosed at the start of the divorce proceedings.

You should consider taking professional financial advice before sharing a pension so that you understand whether you are getting value for money.

For advice contact me on 01896 757734 or email info@fraserjamespartnership.co.uk

Fraser Brydon
Money Matters

You can gift money to your children to your heart’s content, but while there’s no limit to how much you can give there are tax implications to consider.

Inheritance tax
The main concern for many parents when gifting money is that their children will face an inheritance tax bill should the parents pass away.  Inheritance tax gives the Government a piece of your estate before you pass it on to your loved ones.  It is also applied to any monetary gifts you give in the 7 years preceding your death.  The first £325,000 of everything you own is exempt from inheritance tax (it is referred to as the nil rate band), but any amount over this is taxed at 40 per cent.  The exception being, if you are married or in a civil partnership then you can pass your full estate to your spouse in the event of your death without paying any inheritance tax.
By doing this you pass on your £325,000 inheritance tax exemption, so £650,000 of your combined estate would remain free from inheritance tax on second death.  The inheritance tax threshold was frozen at £325,000 in 2010 and it will not increase again until at least 2014

Annual allowance
Everyone gets an annual gifting allowance which allows you to gift a certain amount of money to anyone you choose each year without needing to pay inheritance tax.  The annual allowance for the 2011/12 tax is £3,000, which means you can gift up to £3,000 to anyone.  This £3,000 is a total sum regardless of how you choose to split it between your chosen people.  Additionally, if you have not used last year’s allowance you can gift £6,000 this year and still avoid inheritance tax issues.

Special occasions
Parents can currently give their son or daughter up to £5,000 as a wedding or civil partnership gift, tax free.  Lower limits apply to grandparents and friends who wish to make gifts on this special occasion.  Small cash gifts are also exempt and each year you can give up to £250 to as many people as you like, providing it is not part of your annual exemption allowance.

Regular payment
Regular payments are excluded from inheritance tax liability, as long as they come from your income (not your savings) and do not affect your lifestyle.  So you could pay your children a regular monthly amount.

Selling your house
It is likely that any value in your home will be the main asset that will put your estate into the inheritance tax bracket.  However, selling your home and gifting the money to your children, moving in with your children or even pooling your resources to purchase a new home together could see them face an inheritance bill later on, even beyond the seven year exemption rule.  This is called ‘gifts with reservation of benefit’, and works like this; if you give your home to your children but continue to live there, or move in with them, they are no longer exempt as you will continue to benefit from them.  Consequently the seven year exemption does not apply and the gift will still be liable for inheritance tax on your passing.  The exception is where you pay a market rent for use of the property.

Income tax
Gifts are not eligible for income tax as they are not classed as source of income by HMRC.  Therefore you do not need to worry about your children’s income tax liability when gifting money to your son or daughter, providing they are over the age of 18.

For advice contact me on 1896 757734 or email info@fraserjamespartnership.co.uk

Fraser Brydon
Money Matters

A Government appointed body is considering radical reforms to the way pensioners are paying tax, after thousands were hit with shock bills in the past year. The Office of Tax Simplification

(OTS) has been set up with the specific purpose of making the UK tax system easier, it is collecting evidence on the chaos that has engulfed pensioners since HM Revenue & Customs began aggressively chasing tax it had previously failed to collect. Most pensioners are innocent victims of a complicated and intimidating tax system.  Some pay too much as they do not claim allowances and reliefs which they are entitled to.  Others pay too little because they do not understand tax forms and are then presented with large bills.

Pension “Accountant” problems
One of the major problems with tax for pensioners is that many spend their entire working life having their tax organised and deducted from their salary by their employer through the PAYE system.  Many people check their tax bill every month and then trust it is right.  Yet at age 65, pensioners are expected suddenly to understand complex tax forms as if qualified in accountancy.  Pensioners who only ever had one job, will suddenly have several sources of income, such as the state pension, one or more private pensions, a part-time job and savings income.  They also receive higher tax allowances, but as they must claim these some miss out. Some of the pitfalls of pensioners’ tax are:

• Pensioners with incomes over £24,000 lose their higher tax allowance at the rate of £1 for every £2 of income

• Many pensioners receive a married couples tax allowance, but this is even more complex as it is only given at 10p in the £1

• Some benefits such as the basic state pension are taxable, but others such as war widows pension are not

• The state pension is taxable, but paid untaxed

• Savings products that pay income may be taxable at seven different rates – 0, 10, 20, 32.5, 40, 42.5 or 50 per cent.

• Some investments, such as building society accounts, can be taxed at source, but pensioners may be able to reclaim some tax. Others, such as some National Savings & Investments products, are paid without tax being deducted, but pensioners must work out the tax and pay it later

Pensioner Tax Allowances

• The personal allowance for those aged 65 to 74 is £9,940 for this tax year (April 6, 2011, toApril 5, 2012). Personal allowances for those aged 75 and over are £10,090.

• Once taxable income exceeds £24,000 a year, these higher personal allowances are removed at the rate of £1 for every £2 of income.  Pensioners aged 65 to 74 with an income over £28,930 and those aged over 75 with incomes of more than £29,230 receive the basic personal allowance of £7,475.

• Those who are certified blind and on a local authority register (or who live in Scotland or  Northern Ireland and are unable to perform work for which eyesight is essential) are entitled to an extra £1,980 on their personal allowance. Nontaxpayers can transfer this allowance to their spouse or civil partner.

• The basic state pension is taxable and should be shown on your Coding Notice.  Someone on the single person’s basic state pension of £102.15 a week will have their personal allowance reduced by £5,312 to account for this.  This should reduce the tax allowance of someone aged 65 to 74 to £4,628 and make their tax code 462P.

• Someone receiving the full married couples’ pension of £163.45 (which is paid only to those whose wife or civil partner does not have their own state pension) would see their personal allowance reduced by £8,499.  This should leave a married 65 to 74-year-old a tax allowance of about £1,441.

What is HMRC doing to help?
HMRC says it is trialling a new way of handling phone calls.  It says it has streamlined its administration of extra-statutory concession A19 claims.  An A19 form covers the situation when HMRC delays in using information and this results in an underpayment of income tax by an individual.  It is also reviewing how tax calculations are set out on its notorious P800 forms, which ask for tax owed and an improved version should be ready soon.

For advice contact me on 01896 757734 or email info@fraserjamespartnership.co.uk

Fraser Brydon
Money Matters