FAQs

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Frequently asked questions - FAQs

Pensions

Is my state pension taxable?

What happens to my coding notice in the first year I get state pension?

If I get additional state pension in respect of my wife who is not yet 60 - who is the extra pension taxed on?

How will my pensions be taxed if I retire abroad?

Allowances

What are my allowances?

Can I transfer my allowances to my spouse or civil partner?

I am retired but not 65, can I claim (higher personal allowance)?

Why has my higher personal allowance been reduced?

I will be 65 during the current tax year but I am not getting my higher tax allowance until the next tax year - what can I do?

Am I entitled to married couple's allowance (MCA)?

If my wife and I (or a civil partnership) separate - for how long can I claim married couple's allowance (MCA)?

If my husband or civil partner dies - will I be able to claim his surplus married couple's allowance (MCA)?

State benefits

If I want to claim Pension Credit who do I contact?

Is attendance allowance taxable?

Can I continue to get tax free incapacity benefit (IB) once I am 65?

What happens to my War Widow's pension when I am 65?

Capital Gains tax

If I sell my house do I have to pay Capital Gains Tax (CGT)?

Inheritance Tax and gifts

How much can I give away each year?

Can I give my house to my children and continue to live in it and avoid inheritance tax?

What is a pre-owned asset and when will this affect a gift I make?

Tax returns

Do I need to complete a tax return?

Will I have to complete a tax return if my only income is my state pension?

Will I be able to complete a Short Tax Return instead of the full SA return?

Where can I find the new guidelines for who needs to complete a tax return?

What do I do if I no longer need to complete a self assessment tax return?

Coding notice issues

What do the letters after my code number mean?

What special types of code number are there?

How do the Revenue work out a restriction in my code number?

How do the Revenue work out my married couple's allowance (MCA) on my coding notice?

Savings income and gains on life insurance policies

How is my bank or building society interest taxed?

Can I get my bank and building society with no tax taken off?

How is interest from NS & I investments taxed?

If I make a profit on my life insurance policy - will it be taxed?

Can I still get tax back on dividends?

What is my tax position if I rent out a room in my home?

Annuities

I receive an annuity from a pre July 1988 retirement annuity policy - how is this taxed?

If I am not a taxpayer can I receive my retirement annuity with no tax taken off?

How is a purchased life annuity taxed?

Repayment claims

Can I send in a tax repayment claim for the current tax year or do I need to wait until the end of the year?

If I think I have overpaid tax how do I claim a repayment?

Death of spouse

What happens if my husband or wife (or civil partner) dies without making a will?

If my spouse dies - will this affect my state pension?

Are there any special tax rules for the year my spouse or civil partner dies?

Other topics

What income is taxable and what is tax-free?

I am a non-taxpayer - can I make a Gift Aid payment?

What are the different tax rates and how do they work?

Where can I find out about making a complaint against the Revenue?

Pensions

Is my state retirement pension (SRP) taxable?

• Your SRP is taxable, but it is also paid with no tax taken off before you get it. If your income including your SRP is less than your tax allowances you will not need to pay any tax.



• If your income including your SRP and any other pensions is more than your tax allowances you may need to pay some tax.



• If you also receive a company pension (often called an occupational pension), the tax due on your SRP will be collected from your other pension when it is paid to you. This may make the tax seem high on your occupational pension but this is because the Revenue collect tax on two pensions from the one payment.



• Please check the figure of SRP shown on your coding notice. The Revenue does not always know the exact amount you are due to receive in the tax year.

What happens to my coding notice in the first year I get state pension?

• In the first year you get your State Pension, you will more than likely receive payment for only part of the year. How this is then taxed depends on whether you already get the higher personal allowance for those 65 and over or whether you start to receive the allowance in the same year you first get your State Pension:
  
  

  If you already receive the higher personal allowance

  • If you already get the higher personal allowance, the Revenue will normally include a full year's pension in your coding notice and then tell your employer to use a special type of code (called a week 1 or month 1 code) to make sure that you only pay the right amount of tax.
  
  
  
  • If you are unhappy with this, ask the Revenue to include the correct amount of State Pension that you will be receiving in that tax year - tell them what you think the amount should be and then check the revised coding notice when you get it.
  
  
  

  Starting to get the higher personal allowance at the same time as state pension

  • However, if you will be getting the higher personal allowance for the first time in the year you start to get State Pension, you will only be taxed on the actual amount of state pension you receive in that tax year. Any underpayment of tax that might arise because you have not paid enough tax on your State Pension will be included in your coding notice for the following tax year.

If I get additional state pension in respect of my wife who is not yet 60 - who is the extra pension taxed on?

• Remember that a state retirement pension may include an extra amount known as the adult dependency addition. For example this could be paid to a husband where his wife has not reached age 60.



• The additional amount is taxable on the person to whom it is paid. When she reaches 60 a woman will then be taxed in her own right on any pension then paid to her directly.

How will my pensions be taxed if I retire abroad?

• How your state pension will be taxed will depend upon which country where you are located. It is most likely that the pension will be taxed in the country where you have moved to and not in the UK.



• If you are moving to a country having a tax treaty with the UK and your pension is paid in respect of UK Government or UK local authority service -these will usually be taxed in the UK and not the country where you are living.



• You may be retiring abroad with an occupational pension from the UK. Most occupational pensions will only be taxed in the country where the person receiving the pension or annuity is resident - this would be your new country if you were living there for an indefinite period.

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Allowances

What are my allowances?

• You will get a basic personal allowance no matter what your level of income. A personal allowance reduces the amount of income that you pay tax on so you get some of your income tax free. The Blind Person's Allowance also works the same way.


• If your income is over £22,900, this will affect the amount of your tax allowances. Have a look at Why has my higher personal allowance been reduced? for more information.



• The personal allowance is £6,475 for 2010/11 for those under 65 throughout that year. The allowance is increased for those who will be 65 at some time in the year, depending on their age and income level.



• For 2011/12 the personal allowance is set to rise to £7,475 for basic rate taxpayers. Generally that means people earning less than £43,875 but the figure may increase if you have other deductions such as allowable work expenses.



• Between 65 and 74 the full personal allowance (also called age allowance or higher personal allowance) is £9,490 for 2010/11, rising to £9,640 for someone 75 and over.



• We have a look at a further allowance for some married couples and civil partners in another FAQ which you can access here.

Can I transfer my allowances to my spouse or civil partner?

• You cannot transfer your personal allowance but a husband (or wife if they share the allowance) can transfer surplus married couple's allowances. This also applies to a civil partnership.



• You can also transfer any surplus blind person's allowance to your husband or wife or civil partner to reduce his or her tax. However, a married man or civil partner must also transfer any surplus married couple's allowance at the same time.

I am retired but not 65, can I claim age allowance (higher personal allowance)?

• No. Age allowance (also called the higher personal allowance) is available to you for the full tax year in which you become 65 (not just from your 65th birthday) but it is not available from the date you retire.



• The Revenue will quite often not make any changes to your coding notice to reflect the increased allowances due to you until later on in the tax year so it is worth letting them know at the start of the relevant year (i.e. in April) that you will 65 and ask for your code to be amended to reflect the change.

Why has my higher personal allowance been reduced?

• For an explanation of this click here .

I will be 65 during the current tax year but I am not getting my higher tax allowance until the next tax year - what can I do?

• Your tax office is advised automatically about five weeks before the date when you reach state retirement age. They will issue a form P161 to you to fill in and send back. Once they have the completed form they can then adjust your occupational pension coding notice to take account of your state pension. If you are self employed you will need to tell your tax office that you need a form P161 to complete or you can download it here.



• However what can and does happen is that whilst your higher personal allowance is available for the whole of the tax year you reach age 65, the Revenue will only include it in your coding notice once they have received the completed form P161.



• For anyone whose birthday falls near the end of a tax year this means a long delay in getting these additional allowances.



• It is worth trying to get your coding changed earlier by advising your tax office at the start of the tax year in which you will become 65, that you will be 65 at some point during that tax year and that you would like your coding notice changed straightaway. You may need to give the Revenue an estimate of your income so that they can see the amount of allowance to give you.

Am I entitled to married couple's allowance (MCA)?

• You are entitled to this allowance if you are a married man or civil partner, and either you or your wife (or civil partner) were born before 6 April 1935.



• The allowance is set annually and is different from a personal allowance as it does not reduce your income, but is used to calculate an amount to come off your tax bill.



• 10% of the allowance set for a year can come off your tax bill. So for 2010/11 the allowance is £6,965 so that 10% or £696.50 can come off your tax bill.



• If your income is over certain limits the allowance will be reduced - you can find more information on this in the section on married couple's allowance .



• MCA is due for each tax year that you are living together as husband and wife (or civil partners) and it is also given in full in the year of separation, divorce or the death of either spouse or civil partner.



• In the year of marriage (or registration of civil partnership) the amount to come off your tax bill is one twelfth of the above amounts for each complete tax month (starting on 6th) that you were married. Let your tax office know as soon as possible if you marry in a tax year and qualify because one of you was born before 6 April 1935. You will get your tax relief quicker.



• A wife (or civil partner) is entitled to claim half of the minimum MCA of £1,335 for 2010/11, (£133.50 off your tax bill) or husband and wife or civil partners together may claim that the entire basic allowance of £2,670 (£267 off your tax bill) is transferred to the wife (or one civil partner).



• You should make a claim on form 18 which you can download using the link. You can also get it from any tax office and it applies from the start of the tax year following the claim until you withdraw your claim.



• Where you are unable to use your full MCA in any tax year you can ask for the balance to be transferred to your wife (or civil partner). The request is made on a form 575 which you can download using the link. You can also get it from any tax office.

If my wife and I (or a civil partnership) separate - for how long can I claim married couple's allowance (MCA)?

• MCA is due for each tax year that you are living together as husband and wife (or civil partners) and it is also given in full in the year of separation or divorce.

If my husband or civil partner dies - will I be able to claim his surplus married couple's allowance (MCA)?

• In the year your husband (or wife or civil partner if the allowance is shared) dies he or she will still get the full married couple allowance. You will be entitled to the balance of MCA not used against his or her income and this should be given to you automatically without your needing to make any claim. Make sure you contact the Revenue if this does not happen.

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State benefits

If I want to claim Pension Credit who do I contact?

• To claim Pension Credit just call the freephone number 0800 99 1234 (0808 100 6165 in Northern Ireland) .

Is attendance allowance taxable?

• No. Attendance Allowance is tax free so you should not include it on your tax return or repayment claim.



• To have a look at what other state benefits are tax free click here .

Can I continue to get tax free incapacity benefit once I am 65?

• Incapacity Benefit (IB) is only payable up to state retirement age when it stops and you will start to get state pension instead. It is being phased out for existing claimants and will be replaced by Employment Support Allowance (ESA) between 2009 and 2013.



• It is important that you understand that even if you have been receiving long term tax-free IB (former invalidity benefit claimants) when you reach state pension age this will stop and you will start to receive instead taxable State Pension.



• Many pensioners find it hard to understand why state pension is taxable but the IB is not. In addition for many claimants the tax element affects their cash flow substantially so do bear this in mind if it affects you.



• If you became sick before reaching state pension age, you may be able to get Incapacity Benefit after state pension age. It can be paid at the Retirement Pension rate for up to one year of sickness.

What happens to my War Widow's pension when I am 65?

• A widow or widower is not entitled to a War Widow's/Widower's Pension as well as a Social Security Bereavement Benefit but the War Widow's/Widower's Pension is usually paid at a higher rate and is tax-free.



• It is very important to bear in mind that for any widow/widower reaching state pension age - you have the option to remain on the tax free War Widow's Pension rather than changing to state pension which is generally paid at a lower rate and is taxable.

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Capital Gains tax

If I sell my house do I have to pay Capital Gains Tax (CGT)?

• There is no CGT on the sale of your own home provided you have lived there throughout the time you owned it.



• If you rented out a room in your house, there will be no capital gain if the lodger shares your living rooms and eats with you even though they also have a room of their own.



• Otherwise, there are special rules if you lived elsewhere or you let your home for part of the time before you sold it. Please contact the Revenue for more information.



• If you have more than one house, you have up to 2 years from purchase of the second home to decide which one you want to be your main residence for CGT purposes. You will need to let the Revenue know what you decide within those two years, otherwise they will decide which one is your main residence based on the facts.



• If you want to sell part of your garden you should make sure that this is sold before the house and the remaining garden.

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Inheritance Tax and gifts

How much can I give away each year?

• You can make outright gifts of up to £250 to any one person in a tax year.



• The total gifts to any particular individual must not be more than £250 in that year.



• This is a standalone exemption, however; you cannot combine it with any other exemption.

• You can make gifts of up to £3,000 in total in any tax year and these are tax-free. It does not matter how many people you make gifts to but the overall limit is £3,000.



• A husband and wife or civil partners each have their own £3,000 exemption.



• If you have not used your allowance of £3,000 for the previous year you can use that as well, but only after you have used the later year's exemption in full.

• You can give wedding gifts of:

  • Up to £5,000 to each of your children, stepchildren or adopted children or their intended husband or wife or civil partner
  • Up to £2,500 to each grandchild or their intended husband or wife or civil partner
  • Up to £1,000 to anyone else

• Gifts that are part of your pattern of normal expenditure can be tax-free but you must be able to make the transfer out of your income (after tax) without reducing your standard of living. For example, Christmas presents might fall into this category.

• You might need to use some of your capital to help with the maintenance of your husband or wife, ex husband or ex wife, children under 18 or in full time education or a dependant relative. Such transfers are tax-free. The same rules apply to civil partnerships.

What is a nil rate band and how do I transfer it to my spouse or civil partner?

• The law has been changed so that for deaths on or after 9 October 2007 it is now possible for the first spouse or civil partner to die to transfer the remaining proportion of their unused Inheritance Tax nil rate band.

• This means that any part of the nil rate band that was not used when the first spouse or civil partner died can be transferred to the surviving spouse or civil partner for use on their later death.

• Where a claim to transfer unused nil-rate band is accepted by HMRC, the nil-rate band that is available when the surviving spouse or civil partner dies will be increased by the proportion of the nil-rate band unused on the first death.

• For example, if on the first death the estate of the spouse who has died is £162,500 and the nil-rate band is £325,000, 50% or half of the nil-rate band would be unused.

• If the nil-rate band when the survivor dies is £350,000, then that would be increased by 50% to £525,000. Click here for more information and examples.

Can I give my house to my children and continue to live in it and avoid Inheritance tax?

• If you give something away but then continue to enjoy a benefit in the asset or use it, you will be treated for IHT as if you had not made the gift in the first place.



• A good example of this is when you give away your house to your children - they live elsewhere because they have their own homes and you continue to occupy your home after you have given it away. It is called a Gift with reservation or we say that the reservation of benefit rules apply.



• The gift will only become what is called potentially exempt which means it will be fully exempt from Inheritance Tax after 7 years when you stop having a benefit in it, so if you should die before this happens the full value of the gift will become part of your estate.



• With regard to the gift of your home, there are certain exceptions to this rule if there is an unforeseen change in your circumstances in that you become infirm and are unable to maintain yourself through either old age or illness etc. In addition your occupation of the house must be only what might be expected as provision for your care and maintenance by the donee (person you have given the property to). Bear in mind for this to apply the donee must be a relative.

What is a pre-owned asset and when will this affect a gift I make?

• The rules for pre owned assets came into force from 6 April 2005. Since that date an income tax charge will be imposed on any benefit you get from using a property or other asset that you originally owned and gave away.



• The income tax charge also applies if you pay only a nominal charge for the use of such property or for the use of such assets purchased with funds provided by you.




• Some of the circumstances where the income tax charge will not apply:

  1. Any property given away before 18th March 1986.
  2. If the property was transferred to a husband or wife (or to a former spouse under a Court Order or a civil partner)
  3. Where the gift with reservation rules apply (see previous question)
  4. If the property was sold by you at market value
  5. Where the gift was in money and the gift had been made at least seven years before the donor (person making the gift) first had use of the property acquired with the monies.
  6. Where the gift is of property and the former owner has given part of their interest to someone with whom they share occupation or the former owner needs to move back into the gifted property following changes in circumstances. These rules are the same as gift with reservation rules for inheritance tax - see the previous question.



• Special rules apply if you do not normally live in the UK or you are not domiciled here (your domicile is usually (but not always) the country where you were born).



• The income tax charge is calculated by adding an amount or benefit to your taxable income. It is worked out by applying the official rate of interest to the valuation of the asset or by using the rental value of land or property for the period. If you are legally obliged to pay rents or other charges these amounts will reduce the charge.



• If the value of the benefit before any contribution you make for the use of the asset is not more £5,000 then there is no charge.



• Valuations of assets will be agreed for a number of years.



• When you first use the property that you pre-owned then you may elect that the annual charge to income tax should not apply, but instead that the property in question will be included in your estate as a gift with reservation . The election must be made by 31st January after the end of the tax year in which you first use the asset.



• Unfortunately the charge will also apply to ordinary situations where you might not expect a charge to arise. For example where you give away a property and then in the future use that property without paying a market rent and none of the above exclusions apply. An income tax charge will now arise where in the past if the use of pre-owned assets ended at least seven years before the death of the donor (person who made the gift) there were no tax consequences.



• The rules can be far more complex than we have set out here so please do take advice if you think you have use of an asset to which these rules might apply.

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Tax returns

Do I need to complete a tax return?

• To see if you might need to complete a tax return have a look at the types of situation where a return is needed here .

Will I have to complete a tax return if my only income is my state pension?

• Currently the level of state pension compared with the age allowance means that the annual pension due can easily exceed the higher personal allowance particularly if the state pension has been deferred.



• This leaves self assessment as the only option for collecting the tax due and you may therefore need to complete a tax return although this will almost inevitably be the simpler Short Tax Return. The irony is that in a number of the cases, it almost certainly costs the Revenue more to collect the tax than they are in fact due.

Will I be able to complete a Short Tax Return instead of the full SA return?

• If you receive self assessment returns but have simple tax affairs - for example, as a pensioner if you are in receipt of state retirement pension, an occupational pension or a retirement annuity and you have straightforward investment income, or a reasonably small amount of income from property - you may be able to receive the Short Tax Return instead of the full self assessment tax return.



• The short tax return is four pages long and so is around one-third the size of an average self assessment tax return with supplementary pages. The guidance is also much shorter and simpler. There is no need to calculate the tax on the form but there is a two page simple calculation to give you a rough idea of your tax liability.



• Filing dates are the same as for the full self assessment return.



• The short tax return will be issued automatically based on the information in the previous year's return. However, you will need to tell the Revenue if your circumstances change. There is a list of who will be able to use the Short Tax Return at the front of the guide notes so that you can see if you still qualify.



• You can also file electronically using the Revenue's own online tax return.

Where can I find the new guidelines for who needs to complete a tax return?

• Have a look at Revenue SA Guidelines.

What do I do if I no longer need to complete a self assessment tax return?

• If your circumstances have changed and you think you no longer need to complete a tax return let the Revenue know as soon as possible.



• If you have already received a tax return for a year, they may ask you to complete this and to tell them about the change in your circumstances in the Additional Information boxes.



• If you have not yet received a return for the year, please write to the Revenue and let them know why you think you no longer need to complete a self-assessment return.

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Coding notice issues

What do the letters after my code number mean?

• L
  This code is used if you just have the basic personal allowance e.g. 647L



• P
  This code is used where you receive a full personal allowance and you are aged between 65-74 at some point in the tax year e.g. 949P



• Y
  This code is used where you receive a full personal allowance because you become 75 at some point in the tax year or are already more than 75 years old e.g. 964Y



• T
  

  This is a code used in several situations. For example if you do not want your employer to know your tax status, you can ask you tax office to use this letter.

  This code is also used where your personal allowances have to be reduced because your income exceeds the income limits. You will then be given a code 0T. It is also used where no tax will be deducted from your income. The code given then is NT. You can get more information on these two types of special code in the next question.

What special types of code number are there?

• Have a look here for more information on special code numbers such as K codes.

How do the Revenue work out a restriction in my code number?

• Have a look here for more information on coding restrictions.

How do the Revenue work out my married couple's allowance (MCA) on my coding notice?

• For 2010/11 the rate of MCA where either spouse or civil partner was born before 6 April 1935 is £6,965 MCA @ 10% = £696.50



• If you are 75 at any time in the tax year you will get the allowance for the whole of that year.



• The allowance is set annually and is different from a personal allowance as it does not reduce your income, but is used to calculate an amount to come off your tax bill.



• 10% of the allowance set for a year be taken off your tax bill. So for 2010/11 as the allowance is £6,965, so £696.50 can be deducted.



• If you are a basic rate (20% taxpayer) - you will be getting your married couple's allowance allowed at 20% in your coding notice. However as we have already seen you are only entitled to tax relief of 10%. To stop you underpaying tax, the Revenue put a restriction in your coding notice. For 2010/11 the restriction is £3,483.
  
  So the allowance given in your coding works out like this:
  
  £(Allowance 6,965 - restriction 3,483) = £3,482 x 20% = £696.50



• If you are over 75 and your wife or civil partner has elected to receive £2,670 of the allowance so that you get the balance of £4,295 - the allowance given in your notice of coding then becomes £4,295 and the restriction is £2,148. If you want to see how this is worked out it is similar to the calculation in the above bullet point so:
  
  £(Allowance 4,295 - restriction 2,148) = £2,147 x 20% = £429.50
  


• However watch out! - the Revenue has started to leave out the restriction from coding notices where they consider that there will be no further tax to pay for the year. If you see the restriction is missing from your coding notice you may want to contact your own tax office and ask them to explain why they have done this.

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Savings income and gains on life insurance policies

How is my bank or building society interest taxed?

• Your bank or building society will take off tax at 20% before they pay you your interest.



• If you have an Individual Savings Accounts (ISA) with a bank or building society, you will receive your interest tax-free and you need not include the amount in your income when working out your tax.



• The amount of final tax due will depend on your situation:
  
  

  • Non-taxpayers

    If you do not need to pay tax because your income is so low, then you can be paid the interest without tax taken off before you get it

  
  

  • 10% starting rate for savings taxpayers

    Use the link to see see if you are a taxpayer who gets the 10% starting rate for savings.

    Many of the problems of the 10% taxpayer, as for the non-taxpayer, are through having too much tax deducted from your income before you get it. However, unlike the non-taxpayer, the 10% taxpayer cannot ask for his income, such as bank interest, to be paid without tax taken off. This tax will have been deducted at 20%.

  • 20% taxpayers
    If you are liable at 20% and you get your income after tax has been taken off - there will be no further tax to pay.

Can I get my bank and building society with no tax taken off?

• Have a look at the bank and building society interest section on the HMRC website for information on getting your interest paid gross and the forms you need to complete to do so.

How is interest from NS & I investments taxed?

Many pensioners invest in National Savings & Investment products. There are three types of investments:

• Investments where the payments you receive are free of tax e.g. Savings Certificates, Premium Bonds and ISAs.



• Interest on Income Bonds and the Investment Account is taxable but paid to you with no tax taken off.



• Interest on Guaranteed Income Bonds and Guaranteed Growth Bonds has 20% tax taken off before payment to you. You cannot ask for it to be paid to you without tax deducted if you are a non-taxpayer.

If I make a profit on my life insurance policy - will it be taxed?

• When you take out an insurance policy or investment bond, your financial adviser will let you know whether any profit you make on the policy (or investment bond) when you cash it in will be taxable. This section covers those policies where the profits (which are often called gains ) are taxable.



• You will make a profit on the policy if the amount you get when you cash it in is more than the amount of the premiums you have paid.



• Each year you can withdraw tax free up to 5% of the amount you invested originally. If you do not withdraw your 5% in one year you can carry it forward.



• When you cash in the policy, any profit you make is free of Capital Gains Tax. You can think of it instead as an Income tax gain if this is easier. This is not the same type of gain that you make when you sell or give away an asset.



• If you are a 10% (savings rate) or 20% taxpayer the profit that you make on the policy is treated as having already suffered tax at 20% and therefore you have no more tax to pay. It is not possible to get any of this tax back.



• You will need to show the profit on your tax return if you need to complete one and you will receive details of the amount to be returned from your insurance company. If you do not receive a certificate you should contact the company and ask for one.



• You should bear in mind that any life insurance profits count as your income when working out what age allowances you may be entitled to, and even though you may be a 20% taxpayer, the loss of allowances means you will effectively be paying more tax.



• If you think the profit from cashing in the policy will take your income over £22,900 and you think your income may be lower in the following tax year you may consider waiting until that next tax year to avoid losing any allowances.

Can I still get tax back on dividends?

• Tax of 10% is taken off the dividend before it is paid to you - this type of deduction is called a tax credit. This is a special type of tax credit because unlike tax deducted from bank and building society interest it is not repayable if you have an overpayment for any tax year.

What is my tax position if I rent out a room in my home?

• The Revenue will try to collect the tax by using the PAYE system if you receive a coding notice or by a Self Assessment tax return if you are not within PAYE where you have a lodger who rents a furnished room in your home and the income you receive each year before deducting any expenses is more than £4,250. You then pay tax on the extra income above this amount.



• If the rents are below £4,250 or - for letting by a couple - £2,125 each, it is tax-free.

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Annuities

I receive an annuity from a pre July 1988 retirement annuity policy - how is this taxed?

• All retirement annuities are taxed under PAYE - just like a personal or works pension.

• If you have any queries you can contact the Revenue Annuities Helpline on 0845 366 7868 from 8.30am to 5pm Monday-Friday.

If I am not a taxpayer can I receive my retirement annuity with no tax taken off?

• If you do not pay tax you may be able to get your annuity paid to you with no tax taken off - you can find more information on this here .

How is a purchased life annuity taxed?

• If you buy a life annuity, the amount you receive is treated as savings income. As a result, the annuity payer will take off tax at 20% before it is paid to you.


Purchased annuities are treated for tax purposes as savings income. Part of the annuity is treated like a return of your capital and only the part that relates to income is taxed at 20% as savings.

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Repayment claims

Can I send in a tax repayment claim for the current tax year or do I need to wait until the end of the year?

• You need not wait until the end of the tax year to make a claim.

If I think I have overpaid tax how do I claim a repayment?

• Have a look here for information on how to claim a repayment.

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Death of spouse

What happens if my husband or wife (or civil partner) die without making a will?

• If you die without making a will, we say you have died intestate. Your estate is divided up between your spouse, civil partner, family and friends in accordance with the law, which may be different from your own wishes.



• The rules for dividing up an intestate estate in Scotland are different from those in England and Wales.



• It is therefore important to make a will so that you can decide who gets what rather than leaving it to the law.



• It is usually wise to obtain legal help with drafting a will. Most solicitors will not charge you a lot for this service and you can also contact various charities such as Age Concern. Age Concern have a fact sheet on making wills and you can access it here.



• As well as making a will you can also have a 'Letter of Wishes', which will make certain requests of your executor. This type of letter is useful for giving away your personal effects and other small items, as a 'Letter of Wishes' will be treated as if it were part of your main will.

If my spouse dies - will this affect my state pension?

Widows

• The state second pension scheme S2P (previously known as SERPs) is an add-on to the basic state pension and is based on the level of National Insurance contributions made.




• The rules for inheriting your husband's entitlement to this type of pension have changed and are as follows:

  If you are widowed and reach state pension age:
  Before 6 October 2010
  You will be entitled to 60% of the full entitlement
  After 5 October 2010
  You will be entitled to 50% of the full entitlement

Widowers

• A Category A pension is based on basic pension and an add-on of additional pension. Basic pension depends on the number of years you have worked and additional pension on the amount of your National Insurance contributions.



• A Category B pension is a type of pension based on your spouse's contributions.



• If you were widowed after age 65, your wife was under pensionable age, and your Category A pension is not at the full rate, it may be possible to increase the pension by taking into account your wife's record of contributions.



• From 2010 if your wife dies under pensionable age, you will be able to qualify for a Category B pension. This is a type of pension based on your spouse's contributions.



• You may also be eligible for this type of pension if you were both over pensionable age when your wife died, as long as you were married at the date of her death and she satisfied the conditions for a basic pension. The rate of pension you get will be the same as your wife's basic pension.



• You can also combine category A & B pensions to a maximum of the full rate of basic pension and the maximum additional pension payable at your wife's death.



• You can contact your local pension centre or social security office for more information.

Are there any special tax rules for the year my spouse or civil partner dies?

• For information on the income tax rules for the year your husband or wife (or civil partner) dies click here or for details of how Capital Gains Tax works in the year of death click here.

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Other topics

What income is taxable and what is tax-free?

• Use the links below to see what types of income are tax free and which sources of income are taxable:
  
  • Tax free income
  • Taxable income

I am a non-taxpayer - can I make a Gift Aid payment?

• Gift Aid is a way of making a gift to a charity where the charity gets a tax repayment as well as your cash.



• Gift Aid also applies to gifts made to Community Amateur Sports Clubs (CASC). The relief only applies to gifts made to the CASC and not to any other payments such as membership subscriptions.



• If you are a non-taxpayer you may give yourself a tax liability if you make a donation under Gift Aid. You can only make a Gift Aid donation if you pay tax at least equal to the 20% the charity will reclaim on your gift.



• You are able to count as tax paid any tax credits at 10% on dividends received. If you are submitting a repayment claim, the Revenue will normally take any tax you owe on a Gift Aid payment from the repayment you are due.



• Sometimes they may ask the charity to make good the tax lost.

What are the different tax rates and how do they work?

• The easiest way to explain this is to suggest you have a look at Which tax rates apply to me where we have set out current situation is detail with examples to make it easier to understand.

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Case studies

These case studies come from tax clinics held for pensioners by TaxHelp for Older People.

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