Podcast Summary
Tax obligations for new income sources: Individuals receiving new income sources, such as savings interest or rental income, may need to file a tax return even if they haven't before. It's essential to use the gov.uk tool to check and keep HMRC informed of any changes to ensure accurate tax collection.
It's essential for individuals to understand their tax obligations, even if they have never had to file a tax return before. If someone receives income that hasn't been taxed, such as savings interest or rental income, they might need to submit a tax return. However, banks will notify HMRC about savings interest, and the taxpayer is responsible for notifying HMRC if they need to file a tax return. The gov.uk website offers a helpful tool to check if a tax return is necessary. If someone's circumstances have changed, they can ask HMRC to be removed from self-assessment. It's crucial to keep HMRC informed of any changes to ensure accurate tax collection.
Tax notices: Ignoring a tax notice could lead to penalties, contact HMRC to ask for cancellation or adjustment if unsure of income, inform HMRC of expected bonuses, pay tax by 31st Jan for pension credit, and understand starting savings rates for retirement income
If you receive a notice to file a tax return, it's important not to ignore it even if you believe you may have overpaid taxes or have not yet received all your income for the year. Ignoring the notice could lead to late filing penalties. Instead, you should contact HMRC to ask if the notice can be cancelled or adjusted. However, if you're unsure of your income for the year, particularly if you expect a bonus, you should inform HMRC as soon as possible so they can adjust your coding notice during the tax year. Additionally, if you're considering buying missing years for your state pension, the cost has not decreased, and you must pay your tax by the 31st of January to receive the pension credit for that year. Finally, for those with relatively low income but high savings before retirement, understanding the starting savings rates could help maximize your income.
Tax exemptions for savings income: Individuals with low earnings and high savings/interest income may not pay tax on up to £18,570 due to personal allowance, starting rate band, and personal savings allowance. When drawing from a pension, they may withdraw more than the standard tax-free amount.
Individuals with low non-savings income and high savings or interest income may be able to avoid paying tax on up to £18,570, assuming they have the right combination of savings, interest, and earnings. This is due to the personal allowance, starting rate band, and personal savings allowance. However, when drawing from a pension, individuals may be able to withdraw more than the standard £12,570 tax-free amount. It's important to note that tax codes are the responsibility of the individual to check and ensure accuracy. If an individual has multiple jobs and the same tax code, it's likely that there's an error.
Tax codes for multiple jobs: Ensure each job has the correct tax code based on income, check for discrepancies, and promptly address any issues to avoid future tax bills.
If you have multiple jobs, each job should have an appropriate tax code based on your income from that job. If one of your jobs has a high tax code, it may indicate an error, and you could be underpaying tax on that job. To avoid potential issues, make sure your employer has accurate information about your other sources of income. You can check your tax code notice or use tax calculators online to understand your tax situation better. If you're unsure, reach out to your employer's payroll department or HMRC for assistance. Remember, it's essential to address any discrepancies promptly to avoid potential large tax bills in the future.
HMRC interactions, capital gains tax: Address HMRC issues promptly to avoid larger penalties and interest payments. Capital gains tax applies to the increase in value of certain assets, with an annual exemption and varying tax rates based on income level. Cryptocurrency sales are typically subject to capital gains tax, but income tax may apply in specific circumstances.
While interactions with HMRC can lead to unexpected tax situations, it's essential to address them promptly. Assuming millions are incorrectly assessed each year, dealing with issues early can save you from larger penalties and interest payments in the future. Moreover, HMRC has significant investigative powers, making it crucial to address any potential issues as soon as possible. Capital gains tax is a charge on the increase in value of certain assets. When selling assets, such as a house or inherited painting, you may be liable for capital gains tax on the difference between the probate value and the current market value. However, you can deduct any improvements made to the asset. The annual exemption for capital gains tax is currently £3,000, and the tax rate varies depending on your income level. Regarding cryptocurrency, while some believe it should be treated as a currency for tax purposes, the sale of cryptocurrency is typically subject to capital gains tax. However, there are limited circumstances where income tax may apply, such as receiving tokens from employment, mining, or staking. Always consult a tax professional for specific advice on your situation.
Cryptocurrency taxation: Capital gains from selling cryptocurrency taxed at 20%, mining income taxed as income, marriage tax allowance can benefit couples, and received back pay cannot be applied to previous tax year
The taxation of cryptocurrency and income from personal work varies greatly. For capital gains from selling cryptocurrency, most of the gains can be taxed at 20%. However, if you've created cryptocurrency through mining, it's considered income and taxed accordingly. Marriage tax allowance can be beneficial for couples where one pays income tax and the other doesn't, allowing the non-tax payer to transfer a portion of their personal allowance to the taxpayer. Additionally, if you've received back pay that pushed you into a higher tax bracket in the current year, unfortunately, you cannot get the tax back for the previous year. It's important to understand these rules to minimize your tax liability.
Financial cliff edges: Crossing certain income thresholds can lead to significant financial consequences, such as losing personal savings allowance or child benefits, creating cliff edges that can lead to practical difficulties and undermine financial confidentiality.
There are various financial cliff edges that individuals can encounter, leading to significant financial consequences. For instance, when it comes to income tax on savings, crossing a certain threshold can result in losing a substantial portion of your personal savings allowance, leading to a higher tax rate on the savings income earned. Another example is the child benefit system, where going over a specific income threshold can result in losing the entire child benefit, creating a total cliff edge. These situations can lead to practical difficulties and undermine financial confidentiality between couples. It is essential to be aware of these cliff edges and plan accordingly to avoid unwanted financial consequences.
Politics of child benefits: The decision to take back child benefits is a political one aimed at avoiding pushing people into the benefits system, rather than a tax issue. The Treasury found alternative methods too costly due to potential increase in benefit reliance.
While taking back child benefits may appear to be a tax issue, it's actually a political decision made to avoid pushing people into the benefits system. Martin Lewis, the founder of moneysavingexpert.com, shared this insight during a discussion on the Not the Martin Lewis podcast. He also mentioned that when this policy was introduced, the Treasury considered alternative methods but found it too costly due to the potential increase in the number of people relying on benefits. The conversation touched on the complexities of taxation and the need to find a fair solution while adhering to the principles of the tax system. Overall, the podcast episode provided valuable insights into the intricacies of taxation and government policy. Listeners are encouraged to check out other episodes in the Not the Martin Lewis podcast series, which covers topics such as renters' rights, inheritance tax and probate, general tax questions, and pension planning. Remember to subscribe and leave a review on BBC Sounds or your preferred podcast platform.