Not being a “high earner” or even any kind of “earner”, I don't give much thought to HMRC these days. Except for once a year when they send me my tax code so I can work out how much tax they will be taking from my small private pension now that the State pension and the “State Larceny” low personal allowance Frozen until 2027 to penalise all workers. Particularly the low paid) has decided to tax us oldies (whom they suspect of having a millionaire lifestyle!).
So it was a bit of a wakeup call to me the other day to receive an “updated” notice of coding for the 24/25 tax year. I had assumed at first glance that it was the 25/26 tax code that had arrived. That was, until I looked more closely. The first thing I gleaned was that finally the government has got its wish to be able to look into the accounts of all of us whether they suspect us of nefarious activity or not! I do realise that they have always been able to do this, but it used only to be on application for a warrant from the courts.
The updated notice showed that they have made an “estimate’ of the interest they think I will have received during the last financial year and has decided that I will owe them some money. It’s not a big amount but it shows they certainly want every last £20! Seeing as I haven’t had any notice of interest from my building society yet this year, (not due until sometime later this month), I am surprised that HMRC can “estimate” the interest unless they have been privy to viewing the amount kept in the account!
So I began to investigate. Normal allowance for savings interest is £1000 tax free. For higher earners ie over £40k per annum (though in these days of staggeringly high costs for everything on the planet - except breathing air - I consider £40k earnings to be not nearly high enough to qualify for ‘high earnings”). I found out that low earners can have an extra amount of leeway before they pay tax on savings of a further £5000 added to their yearly personal allowance.
Therefore £12570 + £5000 = £17,570.00
With the additional £1000 savings allowance added on top, you might think that this would cover most pensioners. Even those with small private pensions. But the rules are sneaky. I pulled this off the Money Saving expert site:-
1. A £5,000 starting rate for savings. Here those on lower incomes get an extra tax-free allowance of up to £5,000 for their savings. If your income from pension or work is under the personal allowance (£12,570), you get the full £5,000, meaning you can earn up to five grand in savings interest without being taxed.
If your income from pension or work is above the personal allowance (£12,570), you lose £1 of the £5,000 starting rate for savings for each £1 you earn above the personal allowance.
If your income from pension or work is £17,570 or more. You don’t get any of the £5,000 starting rate for savings.
With the triple lock, combined with a small private pension (added on gross before tax) it will soon make many pensioners arrive at the £17570 level (if they have not done so already) without them having to have anything more than a very modest return from a workplace pension. So you are then left with the basic savings allowance of £1000. With interest rates being as high as they have been recently, it doesn’t take long to get there if you have been “following” the higher rates (even on a quite modest savings pot) as most of us have been exhorted to do by money-gurus.
The moral of this story is that in no way does the government intend to “help” anyone at all (especially those on low incomes) and pensioners appear to be high on the list of their priorities to tax to the hilt for the perceived sin of “not voting Labour”. Though I suspect that a good many pensioners do still actually vote for the “auld party” that they were brainwashed into believing operated to “help the workers”!
The remedy for us all is to pay more attention to our finances. At present Cash ISAs represent a good refuge for savings in that the interest earned is tax free. Using an “easy access” account would still leave you able to draw on anything you invest, if you have need. The government does not like cash ISAs because they (so far) cannot access any of the billions (reportedly) invested there. there is talk of reducing the amount you may invest in such a medium to £4000 per year instead of the current £20,000. They want people now to consider “investments” connected to the stock market to increase “growth”!!
My first reaction to such a suggestion is “well they would say that wouldn’t they” (you do have to love Mandy Rice Davis for leaving us such a useful and all-encompassing phrase!). My view is that they wish to relieve people of as much of their “ill-gotten” accumulated wealth (!) as possible.
Thus, it can be passed on to their, already stupendously rich, chums who are no doubt heavily invested in operating such “funds”, in the hope, perhaps, that some of it might just circulate round and find its way into the pockets of their “facilitators”. History is littered with stories of the losses of gullible investors who trusted their money into the hands of “fund managers” who suddenly went rogue and blew the lot having made their pile first using the money for speculation to their benefit along the way! Who is managing the fund would always be my first thought? And do not forget that the caveat on all such investments is that “investments in stocks and shares can go down as well as up”!
Premium Bonds always get poor press. But my view is that it’s like gambling only you don't lose your stake. When my mother died I put money I had inherited into Premium Bonds and found that over time, the modest “wins” worked out at quite a fair return. Any money “won” is tax free - and that is always a bonus! If you elect to have it reinvested (up to the permitted maximum of £50,000 bonds) the accumulated extra bonds might also become winners. Plus there is always the wonderful frisson of hope each month wondering whether one might just hit the jackpot! In fact, a recent £1M winner only had £100 invested in the bonds and had held those few bonds for years.
Now, I am a “bear of very little brain” and when it comes to money and tax, I’m sure there are many people reading this who will know much more than I about the subject. But, although I’m no accountant, I do know how many beans make five! By leading a prudent lifestyle, I have been able to help my children financially as they have grown up with money to bump up their house deposits. I am not wealthy, but I do have some savings and have received a modest inheritance that I put into my own property purchase. Protecting it from the depredations of government has now become something of a crusade!
As a start I have now moved the ordinary cash account with the building society into a Cash ISA to beat the possible changes that may come in the next budget and to reduce my tax liability for next year after the government has sent me the Pension increase with one hand and taken it back from my private pension with the other!