A new warning about incorrect tax codes has come to light - and this time it’s pensioners who could be paying too much tax.
Accountancy and investment management group Smith & Williamson warned on Wednesday that pensioners are more likely to be under-or-over-paying tax on their income than other taxpayers as a result of incorrect pay-as-you-earn tax codes. This is because many retired individuals are paid income from a number of different pension sources and each of these plans will have a separate PAYE tax code.
Richard Mannion, national tax director at Smith & Williamson, has pulled together some tips for pensioners who want to make sure they pay the correct amount of tax to HM Revenue & Customs:
1) Keep an eye on your tax affairs and be aware of your PAYE coding. Don’t assume that the authorities provide the correct code; this is particularly important if you are in paid employment and / or receiving a private pension from more than one source
2) If your PAYE coding does not make sense, query it with HMRC.
3) Write (or phone) promptly to HMRC about any changes to your tax position, eg a change in paid employment or a new pension
4) Keep all tax related paperwork for at least two years
5) Make use of your annual capital gains tax exemption (£10,600 per person for 2010/11). This can be particularly useful for people who may occasionally sell assets to fund their retirement
6) Whereas the personal allowance for those under 65 is £7,475 for 2011/12, this rises to £9,940 for those aged 65 to 74 and to £10,090 for those aged 75 and over. The allowances reduce once income exceeds £24,000. There are different allowances for certain married couples where one spouse is over 75 years old and anyone who is blind.
7. Be sure to have an up-to-date Will and remember that gifts to family and friends can reduce any potential IHT charge. For example, you can give away an unlimited number of ‘small gifts’ each year of £250 per gift. In addition, there can be tax exemptions on wedding gifts plus a further £3,000 can be given away each year.