MIL been sent a letter from HMRC saying she owes tax on her pension?

[nipersvest]

Bit odd, she's 86, never had one of these letters before but out the blue she's had one today saying she owes tax. She gets a number of different pensions, state, two private pensions which pay a tiny amount and another very small one inherited from her husband. Letter looks genuine but confusing as to why she's suddenly getting a tax bill for 23/24, anyone any ideas as to why?

Presumably you have paid more than £20,000 into ISAs in the tax year and the savings you are paying tax on the interest are in addition?

With everyone I know it's been automatically taxed. The state pension isn't taxed because it's under the limit but anything that comes through that's a private pension has been automatically taxed.

It was a tongue in cheek comment - thinking about the dragon's den types who keep their money in the Cayman islands. Most of us just have to pay up.

HMRC at shit I’ve just received a bill from 2023/2024 changes job tax codes all wrong

ALWAYS send them every bit of info I can but they still get it wrong

Yes, mine was tongue in cheek too 😁

It’s only happening now after all these years because while the state pension has continued to increase the personal allowance (how much income you can have before being taxed) hasn’t. Previously the allowance would increase a bit every year probably allowing your mum to stay within the limit.

Not raising the allowance is sometimes referred to as a “stealth tax” - people don’t notice it in the same way as they do an increase in income tax but it means that people get dragged into the next tax bracket by normal inflationary increases in income.

This is what was confusing me - very clear explanation of an admittedly simple problem, but one I was unaware of. Thank you!

I realise this is a zombie thread, but this happened to my mum. She got the letter, we created a HMRC account for her so we could see what was going on and looked at her p60s from the pension providers. She was paying tax already, it was all coming out of one private pension payment rather than being spread out. And presumably because of some timing lag she had an extra amount to pay. She didn't have to do a self assessment form, just pay the extra owed.

I keep wondering if I will get a letter, but I have no idea how to work out if I am above the threshold. I have a full time wage that is quite small, and now I live alone I take an income each month from my savings to help pay the bills (I sold the marital home in March this year).

You can have an income of £12,570 a year before being taxed.
Money taken from your savings to supplement your income will not count as income for income tax.
However, you can only earn a certain amount of interest on your savings before that interest becomes taxable (unless it is an ISA)

to be correct, that is only true when HMRC is made aware that her total income: state pension + private pension(s) income is > £12,570.

In which case they will adjust her tax code to collect tax thru PAYE and send that tax code to one of her private pensions (state pension is never taxed at source). It is then up to her to check her own tax affairs and contact HMRC to refine the position - if appropriate.

withdrawing money from a savings balance is NOT INCOME. It is however an unsustainable way to live if your income > expenditure, unless you are old and have a huge savings balance that will see you out.

taxable income comprises :

• gross earnings from a job
• interest received on savings in excess of the tax free savings allowance of £1,000 (but if all your interest is earned from an ISA then that is 100% tax free)

I don't know how old you are but this is really simple stuff that everyone should educate themselves on how tax works, loads of websites explain the basics...
Do you understand how income tax works? | Low Incomes Tax Reform Group

The money is coming from an Investment Account. I have a Stocks and Shares ISA too, maxed out.

It might not be sustainable, but its the only option I have seeing as I am now living alone with rent WAY more than my mortgage ever was. I take £600 a month from my Investment Account and it is still worth more than I originally invested thankfully. But it has made approx £8k in interest since I invested.

A lot of these letters are because high interest rates mean that many individuals with savings of more than about £20k are now receiving more than £1000 a year in interest, on which they will now have to pay income tax.

My DDad didn't do a tax form as he thought he was taxed at source. When he died I had to do retrospective forms for 5 years and pay nearly £8000!

pray tell what investment account generates £8k of "interest"

It's in a portfolio with Scottish Widows. The Omnis IV portfolio of funds. Invested £100k in April. It is now worth £108k.

Just to add, I invested when the markets were low because of Trump and his tariffs, so when they recovered, I made money.

Imagine being 86 and having to worry about this !.especially if it's a new situation and your right on the cusp

That sounds like a capital gain rather than interest.

Oh - maybe. I don't really understand the difference. But it sounds like I won't get a letter then owed money to the tax man.

but the point is you have not had 8k of "interest growth", you have had capital growth
the taxation of capital is very different to the taxation of interest

as you are taking £600 per month out of the fund it is possible you are exceeding your capital gains tax personal allowance and should get proper advice from a tax expert.
You may owe CGT even if you never exceed your income tax allowance.

no you will not get a letter asking for income tax, but that does not mean you not evading paying tax and will not escape HMRC attention when your fund reports your withdrawals to HMRC.

Has she got any savings. Interest rates have been very high lately. I am almost 80 and got my first tax demand last year for several hundred pounds.

She’s due to pay tax on any amount over her personal tax allowance for that year.

Labour hitting pensioners yet again

This is correct. Each time you take out £600, you 'crystallise' the gain and should pay any CGT due at the end of the tax year. You have a £3k CGT allowance but any gains over £3k in the year should be declared.

To clarify, the gain won't be the full £600, it will be a % of that amount based on the overall % growth of the investment. Currently, you've got 8% growth, so you'd use that figure.