Can some kind soul please tell me how much Tax I will have to pay?

Question

Next October (2009) I will be retiring at age 65. My wife, aged 64 has paid no Ni contributions and so will get no pensions.

My state and 1 private pension will bring in £15,500 per annum.

Now it gets tricky.

Due to an inheritence, I have about £400K in fixed rate bonds currently at 6% gross and producing £24K in interest, currently taxed at source at 20%.

Therefore my total taxable income will be £39,500.

I am in the UK.

I know that my age allowance will be £9,030.

I also know that if my total income is over £21,800, I will lose £1 of age allowance for every £2 over that. After this point I get a head ache and lose control of my bladder.

Is there anyone out there, a little (or a lot) brighter than I am who can just tell me how much the tax will be? Thanks.

Answer 1

Ok, here goes!

You are talking about tax year 2009-2010 but as those tax bands and allowances are not available yet we have to use 2008-2009.

You have interest of 24000 and pensions of 15500 so as you say taxable income is 39500.

Your personal allownces have been reduced to the basic amount of 6035, because of your income level. The difference takes you less than 6035 but the basic amount is always given as a minimum.

So, you have a taxable income of 33465.

But all of your income must be charged now at 20%. The 10% band was abolished and you do not meet the higher rate level.

So, 33465 @ 20% = 6693

Total tax due = 6693

But, you should have already paid 4800 at source on your interest which leaves 1893 due to pay.

If your earned income (pension) had not come above your allowances, you could still have had the 10% band on your interest income.