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Thursday, 3 September 2009

Claiming back overpaid tax in retirement

Savings interest and retirement annuity income are normally taxed before you receive them. If you have a low income in retirement, you may be able to get these types of income tax-free. You may also be able to reclaim tax you've overpaid on them in the past.

Getting tax-free interest on your savings

If you get interest on your savings, the payments you get have had tax taken off them, at a rate of 10 per cent. 

You can apply to your bank or building society to get the interest tax-free if either of the following apply:

  • your income is below your tax-free allowances - these being your personal allowance, and blind person's allowance (BPA) if you receive this
  • you get deductible married couple's allowance and this takes your overall income below your tax-free allowances

Everyone gets the personal allowance. Once you reach 65, it  goes up. This means you can have more money each year before you start paying tax.

 

Age

Maximum personal allowance

2009-2010

Up to 64 (basic allowance)

£6,475

65 to 74

£9,490

75 or over

£9,640

If your income's over £22,900 for tax year 2009-2010 your higher age-related personal allowance gradually reduces but you'll never get less than the basic allowance of £6,475 for tax year 2009-2010.

If you're married or in a civil partnership and at least one partner was born before 6 April 1935 and you normally pay tax, you can claim the married couple's allowance (MCA).

How to apply to get tax-free savings interest

To apply to get your savings interest tax free you need to fill in form R85 and take it or send it to your bank or building society. You can get the form from your Tax Office or you can download it.

Reclaiming overpaid tax on savings

If you think you've paid tax on your savings interest when you didn't need to, or paid more than you should have, you can claim to get it back. You may have paid more because you were a non-taxpayer, or because your non-savings income (broadly pensions, taxable social security benefits, wages, trading profits or income from property) after deduction of personal allowances did not exceed the starting rate for savings limit (£2,440 for 2009-2010). You have five years from the 31 January after the end of the relevant tax year in which to claim.

You claim the tax back on form R40. You can download this below, use the HM Revenue & Customs (HMRC) online forms ordering service or ask your Tax Office or the HMRC Office that deals with repayment claims for your area. You should usually get your repayment within 15 days, but this could take longer when the repayment offices are busy.

Claiming tax back for someone else

If someone's appointed you to manage their financial affairs, or you're a spouse/civil partner or relative of someone who has difficulty making a claim, you may be able to claim tax back for them. Get in touch with their usual Tax Office or the HMRC Office that deals with repayment claims for their area.

Tax credits on UK dividends

If you get income from UK shares ('dividends') you can't reclaim the 10 per cent tax credit shown on the dividend, even if you don't pay any tax. This is because Income Tax hasn't been deducted from the dividend paid to you - you've simply been given a 10 per cent 'credit' to offset against any Income Tax due.

Reclaiming tax on retirement annuity payments

If you've got a retirement annuity (a pension plan taken out before July 1988) the payments you get have had tax taken off them, at a rate of 22 per cent.

If you don't pay tax, you can apply to get your retirement annuity payments paid to you without any tax taken off. Get in touch with your pension provider and ask for form R89. If you own the annuities with someone else, you'll need form R86.

Reclaiming overpaid National Insurance contributions

When you get to retirement age, you don't have to pay employee's National Insurance contributions (NICs) any more - even if you carry on working. If you've paid NICs by mistake, you can reclaim the money.

How to check you're getting the right allowances

If you're employed, or your pension or annuity's dealt with through Pay As You Earn (PAYE), you can look at your latest PAYE coding notice to see what allowances you're getting. This is sent to you at the start of the tax year and re-issued if something changes.

If you're not on PAYE, your Self Assessment Tax Calculation will confirm your allowances. It also gives a breakdown of how all your different types of income are being taxed.

If you're still unsure, check with your Tax Office. They'll ask you for your National Insurance number and they'll need to confirm your date of birth.

If you find that you've paid too much tax, you can get back what you're owed as long as you claim within five years of 31 January after the end of the relevant tax year.

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