6 September 2018
In this month’s Q&A we look at paying tax on a state retirement pension, NIC deductions on seasonal employment and IHT relief on a parent’s property.
Q. After a long wait, I will shortly be eligible to receive a state retirement pension. Will I have to pay tax on it?
A: Unfortunately, the state retirement pension is taxable. Whether you will have to pay tax on it will depend on the level of other taxable income you receive.
If your state pension exceeds your personal tax allowance, but you do not have any other source of income, then HMRC will collect the tax in a lump sum through another method. You will be sent a Simple Assessment (PA302 calculation). You will need to check that the figures are correct and pay by the following 31 January. If you disagree with the figures, you should contact HMRC immediately as late payment interest will start after the payment deadline.
There is no mechanism to deduct tax due at source so those pensioners with occupational pensions have their personal tax allowance reduced by the amount of the state pension so that the tax due on both sources is all deducted from the occupational pension.
Q. I have two seasonal part-time jobs, both paying the minimum wage. I am worried that neither employer is deducting National Insurance Contributions from my weekly pay. Should I be concerned?
A: In the case where an individual has two jobs, both will generally be considered separately for NIC purposes. The exception to this is if the employers are connected to each other, for example someone who works at a supermarket and a petrol station that are both owned by the same company will be treated as having one employer when calculating NICs.
If you have earnings above the lower earnings limit (£116 per week or £503 per month for 2018/19), and below the primary threshold (£162 per week or £702 per month for 2018/19), you will not have to pay any Class 1 NICs. However, your National Insurance contributions record will be credited as though you have paid Class 1 NIC. These are called NIC credits. These may earn you entitlement to contributory benefits and the State Pension.
If you earn less than the lower earnings limit (£116 a week for 2018/19), you pay no Class 1 NIC and you do not get any NIC credits either.
Q. My father is a widower in his nineties but still lives in the same house that he and my late mother bought in the early 1950s. I also lived there from birth until I married and moved out in 1989. Will I be able to claim Inheritance Tax (IHT) relief for the time that I lived there?
A: The period that you lived in the house will not count as you did not own the house at that time. However, it may not be all bad news for IHT purposes. If your mother left everything to your father when she died, he may well have inherited her ‘nil rate band’. In addition, there are ‘residence nil rate band’ rules increasing the IHT nil rate band, when the asset passing on death to the descendants of the deceased, is the house that the deceased lived in. Further details can be found on the gov.uk website here.
As one of the leading firms of accountants in the North East, with offices in Newcastle, Sunderland and Jarrow, we have the expertise to advise you on a wide range of tax related issues. If you would like to speak to one of our local experts, please contact us.