Tax advice: your questions answered Miscellaneous tax queries
Tax, as the ads say, doesn't have to be taxing. But the UK's tax system is one of the most complex, and dealing with your affairs can sometimes become tricky.
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This guide answers some of your complex questions about tax, helping you deal with your affairs with minimum fuss.
Your tax queries
Q. When your income reaches the £50,000 mark, what happens to your child benefit?
Our experts say: This one has many taxpayers worried – especially the ones who have never had to complete a tax return before. Child benefit itself hasn’t changed. However, a tax is charged at 1% of the child benefit received for every £100 that your adjusted net income goes over £50,000. And if this totals more than £60,000, the tax equals the total amount of child benefit received.
Find out more: Child benefit and tax returns - when do you need to declare it?
Q. I've been drawing private pension income since I retired last year. My tax code for 2013-14 was 1050P. Now I've started to claim state pension, having deferred it for a year, and my tax code has changed to 385P. Why is this and what does it mean?
Our experts say: Most tax codes combine numbers and letters. The numbers show how much tax-free allowance you get; the letters tell your pension provider your tax status. To find out your allowance, multiply the numbers by ten.
If your code is 385P, you should get the first £3,850 of private pension tax free. The P means you were born between 6 April 1938 and 5 April 1948 and are entitled to £10,500 age-related allowance.
You don’t get the full £10,500 tax free allowance, as £6,650 has been used against your state pension, which has been paid gross.
Find out more: Tax in retirement - more information about how pensioners are taxed
Q. My wife, a non-tax-paying pensioner, holds some investment bonds in her name which we want to gift to our children. How do we calculate her tax liability and go about paying it?
Our experts say: Unlike other investments, UK-based investment bond gains aren't subject to capital gains tax or income tax unless the holder is a higher-rate (40%) taxpayer. This is because the insurer you took them out with has already paid corporation tax on income earned by the assets backing the bond, and capital gains tax on profits.
This is the equivalent to basic-rate tax. Although you don't give the exact size of the gain on the bond, it is unlikely to take your wife's income over the higher-rate tax threshold, so there will be no further tax for her to pay.
It would be possible to assign the bonds to your children instead of cashing them in, but in this case it won’t save on tax – as you might if your wife was a higher-rate taxpayer and your children basic-rate taxpayers.
Find out more: Investment bond tax issues - see why the tax benefits aren't as compelling as they seem
Q. Please could you clarify when investments are taxed?
Our experts say: The main taxes investors face are income tax and capital gains. The former is applied to dividends and interest payments, the latter to profits made when you sell.
If you make investments in a tax-efficient account, such as a stocks and shares Isa or a pension, you don't pay capital gains tax, and the only income tax you face is a 10% deduction that is made at source from dividend payments.
Find out more: Tax on savings and investments - our comprehensive guide
Q. I'm divorced, and as I've only worked for the past 10 years I've not been able to save up for a decent pension of my own. I was granted a share of my husband's pension to be paid from the age of 60, in three months time. I'm expecting to receive a lump sum of around £60,000. Will this be tax free?
Our experts say: The lump sum will be tax free, and there's no limit to the amount you can earn while drawing a pension. However, you may find that you could fall into the higher-rate tax bracket, where income is taxed at 40%, if your combined pension income and earnings exceed the threshold.
When you start to receive state pension at the age of 63, this will also be taken into account in assessing your total income.
Find out more: Tax on pensions - work out how much tax you'll pay on your retirement income
Q. I own my own house, which I plan to sell later this year, and a flat which I rent out. The flat is currently managed by a letting agent, but I'd like my son to move in at a reduced rent as he does not earn much. What are the tax implications?
Our experts say: If you sell your main home, you won't have to pay tax on any gain you make. As the flat will remain your property, with your son paying a discounted rent, you'll still have to pay tax on that rental income. The amount you pay will be based on your marginal tax rate - if you're a basic-rate taxpayer (20%), beware that any extra income your earn could push into the higher-rate (40%) tax bracket.
If you sell the flat it will be liable for capital gains tax as it is not your main home.
Find out more: Tax on property and rental income - learn how income from rental properties is taxed
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