As we enter a new tax year, it’s worth looking ahead to what lies on the horizon for 2018/19.
Your personal allowance (the amount of money you can earn tax-free) will rise to £11,850, and the rates for taxpayers remain at 20% and 40% for basic and higher respectively. Those that are self-employed must pay Class 2 National Insurance contributions at £2.95 per week (on profits over £6,205), and Class 4 – 9% of your profits between £8,424 and £46,350, and 3% if your profits exceed that.
You’re likely aware that your tax bracket can change depending on the amount of money you earn, but what happens a little further in the future when you stop working altogether? Do your taxpaying duties vary when you enter your golden years?
Everyone pays Income Tax, even after retirement. This applies to earnings from your pension. Remember, even after you quit work forever, you’re still entitled to £11,850 (as things stand) in Personal Allowance – so you won’t be taxed on any earnings up to this figure.
If you’ve reached the point where you’re asking “will my tax bracket change when I retire?”, there’s a good chance that you’re about to start dipping into your pension pot soon enough.
As things stand, you’re permitted to remove up to 25% of your pension completely tax-free – no matter how often . So, if you had a pension pot of £100,000 and wanted to withdraw £10,000, you will not be required to pay anything to HMRC on £2,500 of it. You can do this again with the same result.
However, setting up a steady income or making subsequent withdrawals after this are taxable and, if you have more than one pension, different rules may apply. Pension legislation is very complex and you should always seek professional advice.
In April 2016, the government introduced a measure known as the Personal Savings Allowance, which outlines the amount of interest paid on your investment that you can receive tax-fee. For 2018/19 and for those on a basic rate, the amount of bank interest you can receive tax-free is £1,000 (£500 for higher rate taxpayers).
You should continue submitting a Self Assessment tax return if this is how you declare any income you receive from your savings.
If you don’t currently use this method, or or suspect you may have overpaid tax on your savings in the past, you can use the R40 form. Information on filling out this form and applying online or via post is available through the GOV.UK website.
Multiple tax codes
You may be given more than one tax code upon retirement. This is because you are likely to receive income from a variety of sources, including your pension(s), savings, and any part-time earnings.
This is why a lot of people still need to create and submit a tax return before the Self Assessment tax return deadline, even after they retire. The good news is that, thanks to tax software, this doesn’t have to be an arduous task.
Download SimpleTax today
Using the right tax software can save the expense of an accountant whilst ensuring you are still claiming the correct allowances – leaving you to enjoy your retirement as you see fit. SimpleTax tax software can calculate everything for you. All you need to do is enter the appropriate information, and SimpleTax will do the rest.
Register for your 14-day free trial now to sample our software first-hand without paying a penny! If you have any questions, you can get in touch here. Our customer service team will be delighted to help.