Frequently Asked Questions

I’m a non taxpayer. How do I make sure I receive gross interest from my bank and building society account?

Just fill out form R 85 provided by the Bank or Building Society and return it to them. This form is also available to download from the Her Majesty’s Customs and Revenue website.

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How much tax is deducted by a bank or building society before it adds interest to my account?

Tax is deducted at a rate of 20%. If you’re a non taxpayer or starting rate (10%) taxpayer you may be able to claim back all or part of that amount.

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I’m a higher rate taxpayer and my building society deducts 20% tax from my interest. Is this correct?

Yes. You’re also liable to a further 20% tax on the gross interest. Let your Tax Office know the interest you’ve received, so they can calculate how much tax you owe.

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What are the limits for a cash ISA in the current tax year?

The limit for a cash ISA is currently £3,600.

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What are the limits for investing into a Maxi ISA in the current tax year?

The term Maxi ISA has been replaced by Stocks & Shares ISA. The limit for a Stocks & Shares ISA is currently £7,200, less anything that you put into a cash ISA (subject to the Cash ISA limit of £3,600).

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What are the changes to inheritance tax announced by the Chancellor in his pre–budget report?

At the moment, no inheritance tax (IHT) is paid on assets passed between married couples or civil partners. Often, when the first person in this kind of relationship dies, their individual tax–free allowance isn’t used. This means that only one allowance is available when the second person dies.

On and after 9 October 2007 these rules changed.

• If a person’s tax–free allowance isn’t used at their death, it can be transferred to their surviving spouse or civil partner. So every married couple or civil partnership can benefit from up to double the tax–free allowance.
• With the first death the percentage of the unused allowance (known as the nil rate band – NRB) will be added to the NRB on the second death. If someone dies in the current tax year, the unused allowance is £312,000. So, if the first partner or spouse dies and leaves £75,000 to their children this uses 25% of their NRB. And on the second death the NRB will be enhanced by 75%.
• Existing widows, widowers and bereaved civil partners will also benefit. So beneficiaries of a will could receive up to a further £312,000 free of IHT, giving them an extra £124,800.

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What are the changes to Capital Gains that came into effect on 6th April 2008?

From 6 April 2008 any personally owned assets liable to Capital Gains Tax when sold will now be subject to a flat rate tax of 18%. Currently they are taxed at 10%, 20% or 40%, depending on an individual’s income.

Taper relief and Indexation, which currently can be used to reduce a gain, will be abolished at the same time. However the annual exemption, currently £9,600, has been retained.

Entrepreneur's relief has been introduced for the disposal of certain business assets.

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I will be 65 in December. Will I benefit from a higher personal tax allowance?

You will. When you reach 65 your tax code will increase for that tax year. So you can earn more money before you start paying tax.

However, if your taxable income exceeds a certain limit (currently £21,800 for 2008/09) your allowance will gradually reduce to the standard personal allowance by an amount of £1 for every £2 you earn above £21,800.

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My daughter has just given birth to our first grandchild and I’d like to know about the ‘Child Trust Fund’.

Every child born on or after 1 September 2002 receives a £250 voucher from the Government, enabling the parent to invest the amount in a savings or investment plan.

Parents, grandparents and friends can add up to £1,200 to the plan every year. And the Government makes another contribution of £250 (and in some cases £500) when the child reaches seven.

The plan matures when the child turns 18.

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I was planning to retire when I’m 50 and take all my personal pensions. Is it true that I’m no longer able to do this?

It depends when you reach 50. From 6 April 2010, the minimum age at which retirement benefits can be taken in normal health will increase from 50 to 55.

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Can I pay into a company pension scheme and a personal or stakeholder scheme at the same time?

Yes you can. The old rules have been scrapped and you can now pay into as many schemes as you want.

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If I’m in more than one pension scheme, how is the Annual Allowance (i.e. the limit on the amount of tax privileges available on pension savings paid in a tax year to a scheme) calculated?

Any payments you make are totalled over all schemes to be measured against your total earnings. All contributions, yours and employers, are totalled and measured against the Annual Allowance (£235,000 in the tax year 2008/09).

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My employer’s pension scheme is a final salary one. How is the employer contribution calculated in this case?

At the end of the year your pension earned under the scheme is calculated and measured against that which applied at the beginning of the year. The difference between the two amounts is then multiplied by 10 and that figure is taken as the value of the contributions in that year.

Your own contributions are ignored in the calculations. Although money purchase AVC payments are counted as additional payments.

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I have a retirement scheme that allows me to go back and apply unused tax relief from earlier years. Can I still do this?

Unfortunately not. The old “carry forward and carry back” rules have been scrapped.

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I’m contracted out from the State Second pension through a personal pension. Do the contributions from HM Revenue & Customs count toward my Annual Allowance?

No, such contributions are ignored.

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Is it true that in the year I retire, I can pay in as much as I want to a pension scheme?

You can pay as much as you want in any tax year but tax relief is limited to the amount of your earnings.

If your earnings are less than the Annual Allowance (£235,000 in tax year 2008/09), you – or your employer – can contribute, without limit, in the year in which you take your benefits.

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I’m going overseas for a couple of years. Can I continue to contribute to my Stakeholder scheme?

Yes, you can continue to contribute to your scheme for up to five years while you are overseas.

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How soon should contributions deducted by my employer be paid across to the pension scheme?

Whether you’re in a company or individual pension scheme, the contributions made from your salary should be paid to the scheme provider within 19 days of the end of the month in which the deduction was made.

For example, if your contributions were deducted from your salary on 25 January, they must be passed to the provider by 19 February.

And if you’re in a company scheme, your employer must produce a schedule each year which shows what contributions will be paid and when.

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After someone has died is it possible to amend their will and distribute the estate differently to reduce IHT liability?

It is possible to amend a person’s will up to two years after their death. This is often used to help mitigate IHT and pass proceeds on to other beneficiaries via a Discretionary Will Trust. This can make quite a saving for taxable estates.

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