Tax Question

[CH1]

I recently did a Tax-self assessment for the first time as I had an income from property. I had made a loss as its my first year. However, I have recently received a tax bill asking for tax to be paid on my savings as the Tax Office informed me I was classed as a 40% tax payer (as I'd received a lump sum payment from last employer). I thought I'd already paid tax on my savings as I'd get interest net but when I queried it they told me that's at 20% only and now I need to pay double that.

So my question is can the loss on the property (which is far greater than the amount of tax they want me to pay) on the net interest) gained from savings be offset against the loss?

The weird thing is if I hadn't done a self assessment I wouldn't have known that I had to pay 40% tax on interest from savings, as myself and several of my ex -colleagues all got a final payout/redundancy whereby we were taxed on that at source but never considered what level of tax was being deducted from any savings held.

[GPEL]

My understanding is that losses from rental property can be carried forward but not used to offset against other profits.

[plym77]

Hi CH1

GPEL os right. Losses made on rental property can either be offset against other rental profits or carried forward against future rental profits. Unfortunately sideways loss relief is not available for residential lettings, unless it is a qualifying UK furnished holiday let.

As far as higher rate tax payments, bank interest has 20% deducted at source, and the higher rate for savings is 40%. Therefore if you are a higher rate taxpayer you will be required to pay the additional 20%.

Dividends are notionally taxed at 10%, and the higher rate is 32.5%, therefore you would have to pay an additional 22.5% for dividends which fall into higher rate.

Just to check, did you declare any personal pension contributions you make personally (ie. not a normal employee contribution through a salary)? Also, did you make any charitable donations under gift aid in the tax year? If so, make sure you declare these. They both receive basic rate tax relief at source, however if you are a higher rate taxpayer you can claim the higher rate tax relief on your self-assessment. This is done by extending the basic rate tax band and therefore more income falling into basic rate. If you have not declared these contributions and have made them, then make an amendment to your tax return as this will improve your tax position and reduce the higher rate tax liability on your savings.

Unfortunately if you have not paid the liability by 28 February you will incur a 5% surcharge on the outstanding tax at that date. Additionally, the current interest rate for unpaid tax is 7.5% pa. so therefore you would be wise to clear the debt as soon as possible.

Hope this helps.

Regards

Sherena Glanton CTA

sherena.glanton@target-accountants.com

[CH1]

Thanks GPEL & Sherena (Plymm) for your response it's most helpful.

I filed my tax assessment in Jan this year @ the local tax office, thinking as I'd made a loss I'd have nothing to pay. I declared all the savings that had net interest paid thinking all relevant tax would have been deducted not realising I fell into the 40% tax bracket for the one-off payment I had received from last employer that had a huge amt of tax deducted at source anyway. I didn't realise banks also deduct tax at 2 rates.

I only received the tax due letter from IR today so will pay it ASAP.

Shame I was thinking I'd get a refund

[plym77]

banks dont deduct 2 rates - if you pay tax, they deduct 20%, but HMRC will then collect the higher rate tax (an additional 20%) via self-assessment.

[CH1]

Thanks Sherena.

Lesson learnt for me -I only received the tax demand yesterday and already its had interest accrued on it in a day so have paid the tax owed plus interest today.

All for receiving one rental payment of 495 in the last tax year!

[CH1]

Thanks Sherena.

Lesson learnt for me -I only received the tax demand yesterday and already its had interest accrued on it in a day so have paid the tax owed plus interest today.

All for receiving one rental payment of 495 in the last tax year!

EDIT

Since making the payment I enquired again with the tax office and apparently I filled in the wrong amount of my lumpsum severence payment in the income to make it appear as if I were normally a 40% tax payer that year, and was informed the first £30k is exempt. My last employer figures were all lumped together -whereas they (or I) should have separated severence against standard salary.

So after making the tax payment am now be filling in an amendment.

Gosh! It really does depend on whom you speak to within the tax office as some are more helpful and can highlight any errors and adjustments whilst others just wnat the tax demand due , end off!