Archived article: This article was correct at the time of publishing. Tax, investments and pension rules can change over time so the information below may not be current.

Pensioners: how to regain tax from the Government

New statistics published today by Prudential show that the over-65s are handing over a staggering £17.5 billion to the Exchequer – that’s 11% of the total annual tax take.

David Smith David Smith
18 September 2015

Post-retirement, the vast majority of UK pensioners do not complete annual tax returns. This is perceived as a blessing, as young and old alike detest completing HMRC’s daunting annual return. However, the sad reality is that your tax code may be incorrect, which could mean that you are paying more income tax than necessary. The great news is that you don’t need to make that worrying call to HMRC to have your tax code checked – there are many online calculators that can do this for you.

It’s now also commonplace to see many still needing, or often wanting, to work past the state pension age. Remember, you shouldn’t be paying National Insurance on these earnings. More and more pensioners need to rent out rooms in their own home just to get by.  Remember, the ‘Rent a Room’ scheme, where you offer a room to a lodger, can allow you to receive up to £4,250 in rent each year tax-free*.

Too often, we see the majority of savings held in a sole pensioner’s name. Often this person is the main breadwinner and therefore the highest taxpayer. Remember that assets can be switched between spouses without any tax implications whatsoever, so try and ensure that investments subject to income tax are held in the name of the lowest taxpayer.

By far the most common issue we see is a pensioner selling OEICs and Unit Trusts without ever planning for disposal, or considering the tax implications. When a married couple own an asset jointly, a gain of £22,200 (2015/16 tax year) can be realised before CGT becomes payable. Again, the inter-spouse exemption can be used to pass between partners without it being classed as a disposal for CGT purposes. This means that individuals can pass all, or part, of their portfolio to a spouse who may have more CGT allowance available, or who may be subject to a lower rate of CGT on disposal.

Many people have amassed portfolios of funds, investment trusts and shares and/or investment properties over the course of time – all of which are assessable to CGT. However, assets only become assessable when a disposal event occurs, which could be via the sale or the transfer of the asset to anyone other than a spouse.  Unless a disposal takes place, the annual allowance is never called upon, nor can it be carried forward to future years; it’s effectively a valuable benefit lost. As a result, many investors are hit with sizeable tax liabilities when they eventually come to surrender and/or transfer long-held assets to children and their grandchildren. Yet, with careful ongoing planning, some or all of a portfolio can be sold to fully utilise an individual’s annual CGT allowance - without ever creating a tax liability.

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The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This article does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact one of our advisers. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. Please note we do not provide tax advice.

It is important to consider all of your options, especially in light of the new pension reforms. If you are unsure of your options you should seek professional financial advice or visit