approaching retirement - uk government web...

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Approaching retirementA guide to tax and National Insurance contributions

Contents

Introduction

Retiring early National Insurance contributions 1

Get a state pension forecast 1

Income tax 2

Claiming your State pension 2

What your HM Revenue &Customs office will do for you

Pay As You Earn tax code 3

Self Assessment 3

Paying the right taxWhat’s taxable and what’s not 4

Income tax allowancesYour tax-free amount 5

Blind person’s allowance 6

Rates of tax – how much you pay 7

Should you be paying tax?The tax check – fill in the boxes 8-9

Paying tax or claiming it backA table of income and advice 10-11

Working and getting anoccupational pension

Should you be paying tax? 12

Over State Pension ageNational Insurance contributions 13

Retiring abroadPaying tax in the United Kingdom 14

Before you go 14

Getting older and passing things on

A brief note about Inheritance Tax 15

Further informationThe Pensioner’s Guide 16

The forms you might have to fill in 17

HM Revenue & Customs was created in April2005, integrating the former InlandRevenue and HM Customs & Excise

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IntroductionOnce you retire, there could be more in the way of tax-freeincome because there are extra income tax allowances when youreach 65 and 75. But broadly how much tax you pay depends onyour income. Just as it has always done.

This leaflet covers in general terms what most people might wantto know as they start their retirement. If you cannot find whatyou need• please contact us by phone. You will find us in The Phone Book

under Inland Revenue• visit www.hmrc.gov.uk• Visit one of our HM Revenue & Customs Enquiry Centres.

You will find the address– in The Phone Book under Inland Revenue– at www.hmrc.gov.uk/enq

Retiring earlyOnce you reach the state retirement age, currently 60 for womenand 65 for men, you no longer have to pay National Insurancecontributions. The contributions you have paid during yourworking life will determine how much State Pension you areentitled to. If you retire before the State Pension age you maywant to think about making some top-up contributions either toboost the amount of your State Pension or to make sure that youwill get the state bereavement payments for widows and widowers.

Tax does not stop when you retire, no matter how

old you are.

But you will not have to pay National Insurance

contributions if you work past State Pension age.

National Insurancecontributions

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Approaching retirementIR121

If you are more than four months away from State Pension age,you can find out how much you will get. Contact the PensionService.

You will need your National Insurance number.

Nothing changes if you retire before State Pension age. Tax on anoccupational pension will be dealt with through the Paye As YouEarn system.Anyone in business will fill in a Self Assessment Tax Return.

Claiming your State PensionFour months before you retire, the Pension Service will send youa State Pension booklet. If the booklet does not arrive you shouldcontact the Pension Service• Online at www.thepensionservice.

gov.uk/approachingretirement/home.asp• Call 0845 300 1084• Textphone 0845 300 2084

Lines are open 8.00am to 8.00pm Monday to Friday

You will need your National Insurance number.

The booklet explains the choices available to you when you reachState Pension age, including• working past State Pension age• if you are sick or disabled• help and advice.

State Pension is not paid automatically, you must claim it. The booklet tells you what you need to do.

Income Tax

Get a State Pensionforecast

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Income Tax

Pay As You Earntax code

Self Assessment

What your HM Revenue & Customs officewill do for youThe State Pension is taxable so the Pension Service will tell uswhen you are due to get it and how much.

Your HM Revenue & Customs office should send you a formasking for the details of any other pensions that you receive assoon as they get the details about your State Pension.It is important that you tell your HM Revenue & Customs officeabout your pensions and other income otherwise you could paytoo much tax. If you do not hear from your office, please contactthem and ask for the form Pension enquiry (P161).

Your HM Revenue & Customs office will check to see if you shouldpay tax on your income, including the State Pension, and makethe arrangements.

If you have an occupational pension or a job you will get a Pay As

You Earn Notice of Coding form showing a tax code number. Thenotes that come with the form explain how the tax code willcollect the tax on your State Pension.

If you fill in a Self Assessment Tax Return it will be picked up aspart of your income for the year.

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Paying the right taxIf you have income not shown in the list contact your HM Revenue & Customs office for advice.

What’s taxable and what’s not

Taxable

PensionsState PensionPrivate, personal and occupational pensionsRetirement annuity

Interest on savings Bank & building society interest (not including ISAs and PEPs)National Savings & Investments accounts and bonds

Investment incomeDividends (not including income from ISAs and PEPs)

State benefitsCarer’s AllowanceIncapacity Benefit after week 29Weekly Bereavement Allowance

RentsFrom any second property From a lodger if more than £4,250 (£2,125 if split between a couple)

EmploymentFull, part time and temporary(If you get perks or benefits ask your HM Revenue & Customs office for advice.)

OtherPensioner bondsTrustsSelf-employed income

Non Taxable

State benefitsDisability Living AllowanceAttendance AllowanceLump sum Bereavement PaymentsPension CreditFree TV licence for over 75sWinter Fuel PaymentsHousing Benefit First 28 weeks of Incapacity Benefit

Interest on SavingsAll ISAs and PEPs Savings CertificatesPremium Bonds

RentsFirst £4,249 from a lodger(£2,125 if split between a couple)

Tax CreditsWorking Tax Credit

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Your tax-freeamount

Over 65

Sharing yourtax-free amount

Income tax allowancesYour total tax-free amount depends on • your age, and• your income.

Everyone gets a tax-free amount of £4,895 in the tax yearending on 5 April 2006.

There is an extra tax-free amount for everyone over 65. But toget the full amount of this higher allowance your income mustbe less than £19,500 in the tax year. Beyond that there is asliding scale depending on your income.

If you do not have enough income to use up all of your tax-freeamount you cannot give the surplus to someone else.

Tax Year 6 April 2005 to 5 April 2006 tax-free amount

Your age by 5 April 2006 allowance for the year allowance each week

Under 65 £4,895 £94

65 – 74 £7,090 £136

Over 75 £7,220 £139

If your income is more than £18, 900 please tell your InlandRevenue office about any Gift Aid payments you make. It couldincrease your tax- free amount.

If you are certified as blind and registered with your localauthority you may be entitled to the blind person’s allowance. InScotland and Northern Ireland we also accept a certificate fromyour ophthalmologist. If you are married and you don’t haveenough income to pay tax all or part of this allowance can betransferred to your spouse.

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Charity Gift Aid

Blind PersonsAllowance

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Rates of tax – how much you payOnce you have used up your tax-free amount you will pay tax ona sliding scale on whatever is left over.

For the tax year 2005 – 2006 the rates of tax are• £1 - £2,090 10% - the starting rate• £2,091 - £32,400 22% - the basic rate• More than £32,401 40% - the higher rate

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Should you be paying tax? The tax year 6 April 2005 - 5 April 2006

First, pick your age from the table below and see how muchincome you can have a year, or a week, without paying tax.

From the table above, enter your annual tax free income in box 1.

£Box 1

Add up boxes 1,2 and 3 and put the total tax–free income in box 4.

£Box 4

If you are a married man and you or your wife were born before 6April 1935, enter £3,735 in box 2.

If you are a married woman and either of you were born before 6April 1935 and your husband has less income than you – please callany HM Revenue & Customs office for advice.

£Box 2

If you are registered blind with your local authority enter £1,610in box 3.

If you live in Scotland or Northern Ireland your local authoritymay not keep a register, you will need you eye specialist certification.

And if you are married and your husband or wife is registeredblind and has less income than you, please call any HM Revenue & Customs office for advice

£Box 3

Tax-free income

Your age by 5 April 2006 Annual limit Weekly limit

Under 65 £4,895 £94

65 to 74 £7,090 £136

over 75 £7,220 £139

You can work it out

Income taxallowances - your tax-freeamount

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Next, work out the income on which you could have to pay tax

State pension – the weekly entitlement x 52 (Do not include any Pension Credit)

Other pensions, for example, from a previous employer

Pay from employment, or profits from working for yourself

Jobseeker’s allowance and taxable Incapacity Benefit. (Do not include Working Tax Credit, Child Tax Credit, or social securitybenefits such as Child Benefit or Attendance Allowance)

Interest from banks and building societies – include the amountbefore tax was taken off. If you have a joint account just includeyour share. (Do not include any ISA interest)

Company dividends and any other income you think may be taxable,for example, rents you receive.

Total £Box 5

£

£

£

£

£

£

Your yearly income

Now, is the figure in box 5 less than the figure in box 4?

Yes No

If ‘yes’ then look at the tax to pay column in the following table.

If ‘no’ look at the no tax to pay column in the following table.

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Paying tax or claiming it back

Occupational pensionor employment

Bank and buildingsociety interest

Type of Income What you should do

Tax to pay

If you are not paying taxthrough Pay As You Earncontact any HM Revenue &Customs office for advice.

The bank or building societyshould be automatically takingoff 20% in tax.

However, if you pay tax on lessthan £2,020 of your incomethen you are only due to paytax at the starting rate of 10%.You can claim back tax takenoff your interest that is morethan you need to pay. Contactany HM Revenue & Customsoffice for advice

No tax to pay

Contact your HM Revenue &Customs office for advice aboutyour Pay As You Earn tax codenumber and claiming arepayment.

Contact any HM Revenue &Customs office or your bank orbuilding society and ask for theform Getting your interest

without tax taken off (R85) tostop any more tax being takenoff. You can ask any HMRevenue & Customs office howto claim a repayment of any taxalready paid.

Remember, if your income goesup you may have to pay tax.

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Annuties

Company dividends and company tax credits

Type of Income What you should do

Tax to pay

The company paying theannuity will automatically takeoff 22% in tax. You only have to pay a 10% rate of tax on thefirst £2,020 of your taxableincome so you may be duesome tax back. You can ask any HM Revenue & Customsoffice for advice.

The tax automatically taken offshould cover what you need topay. But if you have enoughincome to put you in thehigher rate of tax bracket youmust fill in a Self AssessmentTax Return.

No tax to pay

Ask any HM Revenue &Customs office for the formApplication to receive an

annuity without tax taken off

(R89) to see if you can claim arepayment. And to stop anymore tax being taken off.

You cannot stop paying this taxor get the tax back. You shouldspeak to a financial adviserabout your investments. It maypay to switch to a non-taxabletype of saving.

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Working and getting an occupationalpensionOur system should pick you up. You will not have a form Details of

employee leaving work (P45) because you are on pension, so yournew employer will ask you to fill in the form PAYE – notice of new

employee (P46). Your employer will then send it to us. If you donot hear from us, please contact the HM Revenue & Customsoffice that deals with your pension.

If you are paying tax on your occupational pension through Pay As You Earn then you will also have to pay tax on your job.Please use the tax check on pages 7-8 to see how much incomeyou have in a tax year. If it looks like you have enough taxallowances to give you some spare tax-free income ask your HMRevenue & Customs office to split the allowances between thetwo tax code numbers.

If you have a form P45 from a previous employer, give the formto your new employer. Your employer will ask you to fill in theform PAYE – notice of new employee (P46). The State Pension istaxable so when you add it to the income from a job it may meanthat you have to start paying tax. If you do have to pay tax, theHM Revenue & Customs office that deals with your employer willsend you a PAYE Coding Notice with a tax code and a noteexplaining how it works.

If you start working for yourself you must register as a self-employed person within three months. For advice and toregister call• 0845 915 4515• text phone 0845 915 3296.

Lines are open 8 am to 8 pm Monday to Friday 8 am to 4 pm Saturday

Self-employed - in business

State Pension

Should you be paying tax?

Employment

Over the State Pension age You do not have to pay National Insurance contributions if youare getting the State Pension, but your employer will needconfirmation of this.

Please call 0845 60 60 265 and ask for the form Certificate of Age

Exception (CA4140). The form tells your employer not to takeNational Insurance contributions from your earnings.

Under the State Pension age

The amount of State Pension you are entitled to depends on theNational Insurance contributions you pay during your workinglife. To get a full basic State Pension you must have qualifyingyears of contributions,• men must have 44 years• women must have 39 years.

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National Insurancecontributions

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Retiring abroad

How much tax you pay will depend on • which country you pay it in• where the income comes from, and• how much time you spend abroad.

Broadly, if you are resident in the United Kingdom (UK) you willpay UK tax on your income. If you are not resident you will payUK tax only on income from the UK.

In basic terms, you are not resident if• you are living in another country for at least a full tax year,

6 April to 5 April, and• your visits back to the UK will total less than 183 days in any

tax year.

There is no standard taxation in the European Union. But thereare numerous tax agreements between countries so you shouldnever have to pay the tax twice on the same income.

The State Retirement Pension, although it comes from the UK,will not be taxed in the UK. So you would have to declare theamount on any foreign tax form you might be asked to complete.

Depending on your income and how long you intend to beabroad, you might be due for a repayment of tax for the year thatyou go. Please ask any HM Revenue & Customs office for Leaving

the United Kingdom (form P85).

Anyone who is going to live abroad and would like more detailsabout tax and national insurance• visit www.hmrc.gov.uk/cnr/ or• call 0845 07000 040.

Lines are open 7.30am to 5.00pmMonday to Friday.

Before you go

European Union

Pay tax in the UK

Helpline

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A brief note aboutInheritance Tax

Leaving more than£275,000

Gifts

Getting older and passing things on

Inheritance tax could be due when• someone dies or• assets, such as a house, are transferred to a discretionary trust

or a company.

The starting point for Inheritance Tax on a person’s estate, in thistax year (6 April 2005 – 5 April 2006), is £275,000.

Broadly, a person’s estate includes the total value of • everything owned in his or her name• gifts made where the person continued to benefit from the

gift, for example, continuing to live in a house that has been given to someone else

• certain gifts made in the seven years before death• the share of anything owned jointly• assets held in trust that give a personal benefit, for example,

an income.

Anything that you give during your lifetime or leave on yourdeath to your spouse is free of Inheritance Tax. But both of youmust live permanently in the UK.

If you would like further details please • visit www.hmrc.gov.uk/cto/iht.htm or• call our Probate and Inheritance Tax Helpline

on 0845 3020 900.Lines are open 9.00am to 5.00pmMonday to Friday.

Helpline

Further informationWe recommend

The Pensioner’s Guide – Making the most of government help

and advice.

This guide from the Pension Service covers the range of help andadvice for pensioners from central and local government. Theguide will point you in the right direction for things like• Winter Fuel Payment• Pension Credit• Free TV licence for over 75’s

It also includes pages of useful contacts. These include,everything from Citizens Advice, Help the Aged and the NationalMinimum Wage Helpline to the Anchor Trust, who offer help andadvice for physically or mentally disabled older people.

To get the booklet order online • at www.thepensionservice.gov.uk/resourcecentre/

home/orderform-step1.asp • call 0845 60 60 265 or• textphone 0845 60 64 064.

Lines are open 7 am to 11 pm every day

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The forms you might have to fill in Pension Enquiry (P161)

Asks people paying tax under PAYE - ‘Are you getting a pensionnow or approaching State Pension age?’ This will help your HM Revenue & Customs office check your tax code number.

PAYE – notice of new employee (P46)

Your employer will give you this if you start a job without a P45.It asks if you are also getting a pension.

Claim for repayment (R40)

This form asks for details of your income in a particular tax year. Italso has sections where you can claim for income tax allowancessuch as the Blind Person’s Allowance. You will have to fill it in ifyou ask for a repayment of tax.

Getting your interest without tax taken off (R85)

If you have some money in a bank or building society you will bepaying tax on the interest unless you have filled in a form R85.The bank or building society automatically take tax off theinterest. If you are not due to pay income tax, use this form to getthe interest without tax taken off.

Application to receive an annuity without tax taken off (R89)

The society or company paying your annuity will automaticallytake tax off before it is paid to you. If you are unlikely to have topay income tax, use the appropriate form to ask for your annuityto be paid without tax taken off. There are conditions, but theseare explained on the forms.

Pensions

Starting a job

Getting tax back

Savings

Annuities

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We have a full range of services for people withdisabilities, including leaflets in Braille, audio and largeprint. For details, please ask your local Inland Revenueoffice or Enquiry Centre.

We have a full range of services forpeople with disabilities, includingleaflets in Braille, audio and largeprint. For details, please ask yourlocal Inland Revenue office orEnquiry Centre.

These notes are for guidance only and reflect the positionat the time of writing. They do not affect any right of appeal.

Issued by HM Revenue & Customs Better Guidance ProgrammeJuly 2005 © Crown Copyright 2005

Printed in the U.K. by The Astron Group. 07/05 NSV Code XXX XXXX

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