Pod Insights The Martin Lewis Podcast Everything you ever wanted to know about tax but were too afraid to ask! About this episode With the self-assessment deadline less than a fortnight away, Martin Lewis answers your questions on everything tax, with the help of two tax gurus, including: tax returns, inheritance tax, making tax digital, capital gains tax, PAYE, savings tax, and more. Plus, Mastermind this week is all about gift cards, and Martin speaks to Harriet from the Traitors.
If you want to ask Martin a question, you now can! His Question Time podcast lets you ask Martin absolutely anything and everything (within reason!). So, if you’ve always wanted to know his favourite fruit, if he can say the alphabet backwards, or have a very complicated question about your finances, email it to [email protected] mailto:[email protected] .
Transcript 13,292 words · 10 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Speaker 00 This BBC podcast is supported by ads outside the UK.
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1:48 Martin Lewis? Legally, it is the individual's responsibility to ensure that their tax code is correct.
1:53 Speaker 03 Sometimes HMRC might not know about some sources of income.
1:57 Speaker 04 I mean, strictly, yes, it does have to go in by 31st of January.
2:00 Martin Lewis? I totally get what happened because I get very into my subject too. Hello, I'm Martin Lewis and this is the cunningly named The Martin Lewis Podcast. I do wonder what that's going to be about. Now, usually much of it comes from my BBC Radio 5 live show with Adrian Charles, but there's also bonus money-saving tips for you lucky, lucky podcast listeners. And today with the tax return deadline less than two weeks away, it's a tax special with a pair of tax specialists. So in today's pod, we'll be talking about who has to do self-assessment, PAYE and your tax code, it's legally your responsibility to make sure that it's right. Making tax digital, savings tax, inheritance tax with my five things
2:42 Martin Lewis? everybody should know about inheritance tax, capital gains tax, pensions tax and more. Then in Mastermind, it's all about gift vouchers. What are your rights when they expire, which they commonly do? And?
2:57 Martin Lewis? Nothing to do with money, but I was asked to butt in on a traitor's interview with Harriet as I'm an avid viewer and Adrian isn't, so we'll tag that to the end too. But for now, play our theme tune.
3:23 Martin Lewis? Okay, tax then. What's our approach going to be today? So we're going to go through sort of section by section and we're going to start with the most pressing one, which is the tax return deadline, if you like, the self-assessment deadline, the 31st of January. If you miss it, you risk a £100 fine and crucially, 7.34% interest, the heavy rate of interest, that's an annual rate of interest, but applied for each day that you're late to pay the actual tax. So, I mean, there is an argument to say even if you can't get your tax return done, if you roughly know how much tax you need to pay and you owe that tax, then pay the rough amount of tax in because that would minimise the interest cost. You don't have interest on the amount that you were short. So who needs to do?
4:05 Martin Lewis? Self-assessment. Well, the main categories are HMRC has told you to do it, which is more likely for higher or additional rate taxpayers. You're self-employed and earned over a thousand pounds in the tax year, you should be doing it. You get child benefit, earned over sixty thousand pounds in the tax year and haven't opted to change your tax code, you should be doing it. Or you earned ten thousand pounds or more from savings interest or investment dividends in the tax year, you should be doing it. After that, it starts to get complicated, which is why, because this is a specialised subject, we have a couple of specialists in. I'll let you do the introductions, Adrian.
4:44 Speaker 05 Okay, we have Carrie Mellon, Director of OPES Tax Limited. So what's OPES Tax when it's at home then, Carrie?
4:54 Speaker 03 Hi Adrian and Martin. OPES Tax works exclusively with individuals and trusts, helping them get their personal taxes right.
5:03 Speaker 05 Okay, and in a similar field of work, Rebecca Bennyworth, Chartered Accountant and Tax Expert. How are you Rebecca?
5:10 Speaker 04 Morning Adrian, morning Martin, afternoon I should say. Very well, thank you.
5:15 Martin Lewis? Carrie is absolutely brilliant and on the coalface, and I've had her in the Not The Martin Lewis podcast before, as I've had with Rebecca. Rebecca is, when you talk to people in tax and you mention the name Rebecca Bennyworth, I mean, you're talking the tax wills equivalent of Cristiano Ronaldo here. It's like, Rebecca Bennyworth. So, I mean, we are, we are, we are in the presence of greatness, Adrian.
5:35 Speaker 05 Okay, I didn't doubt it for a minute. I've just got a quick question first. Martin was explaining, Carrie, you take this one. Martin was just explaining all the people that do have to put a self-assessment in. Is there no mechanism for, do they not come to you and say, HMRC and say, well, our records suggest you need to make a self-assessment, so crack on.
5:58 Speaker 03 Quite often HMRC will contact a taxpayer and say they need to do a tax return. But sometimes HMRC might not know about some sources of income. So for example, if you rent a property and after you've deducted your costs of letting it, you've got a profit from that, you would need to pay tax on that. And HMRC might not be aware that you own that property. And it's obviously called self-assessment. It's up to taxpayers to take responsibility and self-assess their tax liability.
6:29 Speaker 05 Okay, and we've got a first question from Jeanette Holdstock, um, whose husband unfortunately died on the eighth of January. Sorry to hear that, Jeanette. He always dealt with money matters. And at the moment I have other things to deal with. I can well imagine. Do I have to sort a tax return before the thirty first of January? Who, who, who, who, who wants that one? Rebecca, go on.
6:53 Speaker 04 I mean, strictly, yes, it does have to go in by the thirty first of January, but um, the hundred pound fine can be waived if you have what's called a reasonable excuse for a failure. Um, I think the recent death of her husband means that um, Jeanette does have a reasonable excuse. Um, so if you don't file it, then you will get a letter with a penalty in, probably around the end of February, saying, um, you haven't filed your tax return, it's a hundred pound bill. But with that will be information on how to appeal against the penalty. And um, use the words reasonable excuse, explain that her husband died and she was dealing with that. Um, and I think that will get that penalty cancelled. But one thing to remember is that
7:37 Speaker 04 you've got a reasonable excuse now, but if you then don't file it until, let's say, September, I think HMRC's view would be that that reasonable excuse had come to an end at some point. So um, the sooner the better you feel up to dealing with it or getting somebody to help you with it, so that you can cancel any fines. Um, yes, there will still be in interest on any tax that might be due. Um, but the main thing is to remember to do this appeal. Look out for the letter, um, and then do your appeal, um, within thirty days and the fine will be cancelled.
8:12 Martin Lewis? So Rebecca, Rebecca, we don't know the scale of this, and I have a feeling Jeanette doesn't know the scale of this, but I don't know if you have an accountant, Jeanette. My, listening to Rebecca, and, and you have the expertise, I, I look at what, what would I do if I'm hearing that information in, in your shoes, and I'm so sorry to hear about your husband? I mean, you might want to try and contact HMRC and just let them know. I think having it on record is always helpful of what's happened. It also might be worth looking if your financial circumstances haven't changed that much about what tax was paid last year. To HMRC and maybe you want to pay 90% of that Rebecca, would that be sensible just to reduce any interest cost?
8:50 Speaker 04 Because the interest rate, as you said, is so high, Martin, I think, you know, if you've got a reasonable assumption that the tax is going to be similar, then paying that using the taxpayer reference as your reference number.
9:06 Martin Lewis? Even if you haven't done a self-assessment return, just pay it.
9:09 Speaker 04 Yeah.
9:10 Speaker 05 But are we talking about Jeanette's tax return now, I might be missing the point here, or a late husband's tax return?
9:17 Speaker 04 It's not clear, is it, from the question, but whether it's hers, if it is her husband's, then you're in a slightly better position because HMRC will know that if somebody's died, somebody needs to deal with the estate and the tax return will be part of that, but that won't be done immediately. But if it's Jeanette's, like, she has got a reasonable excuse, so I think that's, and pay the tax if you think there will be tax due, then making a payment towards that will stop any interest running.
9:52 Martin Lewis? And Jeanette, something else, just on a human touch, if you have a sensible friend who isn't also affected by the grief, so it's probably not a close family member who's good at this type of stuff, get them to have a listen to this with you and maybe, and you know, in these times, people are always willing to help, maybe they can help you with it and just take a little bit of this burden off you for the moment. And we wish you ease through the grief, Jeanette.
10:12 Speaker 05 Absolutely.
10:13 Martin Lewis? Let me move on.
10:13 Speaker 04 I will, I will just say, Martin, HMRC's bereavement team are absolutely excellent. And so if necessary, you could ring and ask to speak to the bereavement team.
10:24 Speaker 05 But who do you ring? Is that clear? Is that clear? I can't find a human being anywhere in any organisation at all, ever anymore. So you can get to speak to somebody, can't you?
10:34 Speaker 04 You can speak to a real human being and they've been trained to deal with people who've been bereaved. I've dealt with them myself and I found them extremely helpful.
10:42 Martin Lewis? Now, Sarah Beckett Bartlett, if I record my tax return, on my tax return that my self-employment ceased mid-year, will I still have to complete a tax return January 27? So clearly you have to do one this year, but how does it work, Carrie? How does it, can you switch off the need to do a self-assessment return? Because the general rule is if you're told you have to do one, you have to do one, even if you can't see any rhyme or reason for it, isn't it?
11:09 Speaker 03 Yes, but if Sarah's self employment has ceased during the tax year, and the self employment was the only reason why she was doing a tax return in the first place, if she marks the box on her tax return to say it's ceased, and maybe adds a little bit of additional information as well, then HMRC's systems should accept that and pull her out of self assessment for the next year. If they don't, then I would encourage Sarah just to call HMRC and relay that position to her, and then they can retrospectively cancel it.
11:43 Martin Lewis? Okay, so you've got a good chance you won't need to do self assessment next year. Let's, next one Adrian, why don't you?
11:50 Speaker 05 Okay, this is from Dave Hartshaw, and says, retired 31st of January 2025, so almost a year ago, have never dealt with a tax return all my life. Do I now have to complete one declaring my pension income?
12:05 Speaker 04 He will have a state pension, Dave, you'll have a state pension. But it sounds to me from your question as if you've also got an occupational pension or a pension from your job, private pension. That would be taxed through PAYE. So when your pension payments are made, your tax code will be adjusted and you won't get much in the way of a tax allowance because your state pension actually covers almost all of your tax-free allowance each year. So you will pay probably tax almost on all of your private pension. And that should do it. In other words, no, you shouldn't have to do a tax return unless you've got
12:51 Speaker 04 other income that Martin went through that triggers you to do a tax return. Generally speaking, for pensioners, the tax system will actually pick up the slack for you. You might get an annual tax bill called a simple assessment if you've got some other income that HMRC know about and they think you need to pay tax on. But no, retiring doesn't cause the need to do a tax return.
13:16 Martin Lewis? Anna says, I pay 20% of my pension income. If my additional unearned income, not interest from savings, is less than £3,000, do I still need to do a self-assessment online? Carrie, I suppose it depends where that income is coming from, does it?
13:30 Speaker 03 Yes, totally. If, for example, she's getting dividend income, she may only be entitled to the first £500 tax-free, so it very much depends on what type of income that is. And going back to what I said before, if it was rental profits and she's already paying basic rate tax, those profits would be subject to tax. Now, Anna may have been sent a simple self-assessment like Rebecca referred to a minute ago. If she has, Anna should check all of the figures in that calculation. If she agrees with it, accept the calculation. If she doesn't, contact HMRC within 30 days to discuss and amend the figures. But if she doesn't get a simple self-assessment, then Anna should do a tax return because it
14:14 Speaker 03 sounds like she might have tax to pay on that income.
14:17 Martin Lewis? Thank you. Right, Adrian, we've got four more self-assessment questions. Over to you.
14:20 Speaker 05 Okay. So come April, says Justin, I'll be doing my usual yearly tax return. Normally I just fill out the self-employed section. This year, alongside my self-employed roofing work, I am one of three directors in a solar company and have received some small amount of income from it. My question is, do I just declare that extra income through my self-employment as earnings? Or do I need to complete a different section? Oh, it's so complicated.
14:47 Martin Lewis? Carrie, I think that's yours.
14:48 Speaker 05 Carrie?
14:49 Speaker 03 Okay. Well, Justin says he's a director of a company. So a company is a separate legal entity and it's completely separate from his self-employment. So it would very much depend on what type of income has Justin received from that company. It could be a salary, in which case he needs to do the employment pages on his tax return. Or it might be a dividend, in which case that needs to go into the main body of the tax return. But it does sound completely separate from his existing self-employment.
15:20 Speaker 05 Okay, got it. Lukey, why don't HMRC fix the self-assessment calculation? Class 4 NIC when employed and self-employed still doesn't correctly calculate according to... I'm beyond my understanding now, NIM 24175. Every year I have to point out their mistakes.
15:43 Martin Lewis? Right, it's more campaigny. Let's move to you on this one Rebecca. What is NIM and what's happening?
15:48 Speaker 04 Okay, NIM is the National Insurance Manual. So that's the internal manuals that HMRC use to determine how to deal with people's tax. And what Lukey is probably crashing into is if you are both employed and self-employed, there is an interaction between the national insurance you pay as an employee and the national insurance you pay as a self-employed. And if your total earnings are quite high, more than about 50,000, it's likely that your self-employed national insurance, it's called Class 4, it's likely that that would be reduced because you've already paid quite a lot through your job. So I think that's what Lukey is referring to.
16:33 Speaker 04 And actually it's news to me that HMRC software doesn't do it right because I use obviously accountant-type software and my accountant-type software does get it right. It does go back, there is a bit of history here. You used to have to write in separately anyway and claim it back. So you used to have to pay it all and then claim it back, which was awfully clumsy. But yeah, I have some friends at HMRC. I might ask them if that's right.
17:01 Martin Lewis? I was going to ask you Rebecca, this is why we have you on the show because we know that you have those lines dripping into HMRC and to government on this type of stuff. Will you take this one up for Lukey for us?
17:13 Speaker 04 Yeah, I'll take this up and find out why that doesn't work. So I'll put that on my little list and I'll corner somebody and find out what's going on with that.
17:23 Martin Lewis? And now my last one on the self-assessment section. Well, it's from Cathy. I had a lot of trouble this year understanding the forms from HMRC. For many years, I could fill in very easily most of the form, then ring them up and check it for five minutes, and hey presto, it was done. Nowadays, this personal help has gone. I tried webinars, scoured through their notes, got friends to help, but to no avail. Finally, I did try to hire a tax adviser to help consult, but none were free and some were charging a big fee for my relatively simple computation, re-owing £150 in tax. It's going to cost you more to get the advice than the amount of tax. Bring back someone to guide me through. An army of bright, young graduates placed in shopping centres could work marvels. I'm an eight-year-old professional, but I struggle with technology. Rebecca, I
18:07 Martin Lewis? think this is in your bag. I mean, what do we do about this? HMRC tried to pull its phone lines at one point, and they reinstated them, didn't they? But I mean, there's a lot of people, and just as an aside, we're getting close to that deadline. We're two weeks away from it. You know, do it now. You leave it to that last couple of days, and you're not getting through in touch with anyone. You should be doing this in December, in October, in November. Anyway, but what do we do about this? I mean, has HMRC, is it still, is it good enough for what we need?
18:36 Speaker 04 Um, gosh, that's verging on a political question, because it's all about
18:42 Martin Lewis? It's a service-based question.
18:43 Speaker 04 Yeah, well, it is, it is, and it is very difficult. And there are some people who need help with their tax who aren't able to get it from the tax authority. And that's because the tax authority is overwhelmed with demand, and in my personal view, is under-resourced. So what can I say that would help Cathy?
19:07 Martin Lewis? £150 in tax, she shouldn't have to pay someone £500 to sort it, should she?
19:12 Speaker 04 Absolutely not, absolutely not. Now, Cathy, couple of points. If you are low-income...
19:18 Speaker 04 There are two tax charities and actually Cathy, you're eighty. So there are two tax charities and the one I'm thinking of is called Tax Help for Older People. And they have an army of volunteers. I've worked as a volunteer for them in the past. Who will for elderly people on low incomes, they will come round to your house and they will sit with you. And they will sort out your tax. So Tax Help for Older People, that's quite a good one. The other one is Tax Aid. Tax Aid is more London based, but you can deal with them on the phone and by email. And again, they help people who've got low incomes and got themselves into a mess with their tax affairs.
20:00 Speaker 04 For free and lots of tax professionals make donations to those charities at the end of the year. Because we all think they do an absolutely fabulous job. There's one other thing and at eighty, you've said I've looked at webinars and things, so. I wouldn't suggest it to everybody, but you might get a bit of help on web chat. HMRC are devoting quite a lot of money and resource to web chat. And if you are, some of it is the computer says yes or no. But actually, if you're asking questions that they think you need a real life advisor. You may well be able to get put on to an advisor who might help you.
20:40 Speaker 04 So there are a few ideas, but yeah, I would agree, Martin, really, you know, we need more people working for HMRC. But government's got to put the money there.
20:50 Martin Lewis? Let's remember for the state, making a good service of HMRC brings more money in, people doing it properly, less avoidance. This isn't about a cost. I mean, ultimately do it right and you collect more tax revenue. Because people are paying their right tax and that when they don't know what to do, you just, it's not good for society. Anyway, we've got lots more to do. We're going to go through PAYE, then Making Tax Digital, which has a lot of stress involved around it. And I know Rebecca's been campaigning on that one. And then we're going to go through the specifics. I want to do savings tax and inheritance tax. So let's start with PAYE. You do the first one, Adrian, go on.
21:22 Speaker 05 Okay, so Jonathan says, I work PAYE. Is it my responsibility to keep an eye on my tax as a big company I work for messed it up? And I'm now paying back what I owed with interest from 23 to 24. How do I check or know they are getting it right? And then why is he, why is he paying the penalty there?
21:41 Martin Lewis? Well, because, I mean, I, I think if this is about his tax code, and remember, we all get to pay our PAYE, we all get sent a tax code each year that dictates how much money our firm should take offers when we are paying through PAYE. Then it is not the tax office and it is not your employer. Legally, it is the individual's responsibility to ensure that their tax code is correct. So while firms can make mistakes and HMRC can get it wrong, in fact, millions are wrong each year. The onus is on us to check that our tax code is correct. And I, I mean, which is, which is a fart in some ways because it's way too complicated for most people to understand. There are tax code calculators online that you can plug your tax code in and it will try and give you a basic explanation of,
22:26 Martin Lewis? of what that means and then you, with checks of whether that roughly seems to be right or not. But Carrie, this is right in your bag, this one. I mean, two questions. First of all, if it's not the tax code, is it still his responsibility? And secondly, how would you guide people to try and understand their tax code to make sure they get it right?
22:46 Speaker 03 Well, if the tax code has been wrong, as you say, it is his responsibility to acknowledge that and deal with it. If it was taxed due for another reason, then again, that's Jonathan's responsibility. My advice to all employees is that when you receive either in the post or via an email notification that you've got a new pay-as-you-earned tax code, take five minutes to read through it. The front page can look quite scary, but the notes on second and third pages explain the figures and those notes are usually quite clear and explain why a figure's in there. And I'd also say that HMRC are working on information they have from the previous
23:28 Speaker 03 year. So if something new has happened in your role, maybe for example, you've been given a company car, HMRC will not know about that the day that you get the car. They'll only find out about that at the end of the tax year. So think in your role, has something else changed? Have I been given more income or more benefits? And has my code changed at the same time? If it hasn't, then contact HMRC to update them.
23:54 Martin Lewis? Brilliant, thank you. Let me do another one here. KH, my daughter has one self-employed job and two PAYE jobs. How does the tax allowance work in these circumstances? Is the £12,500 personal allowance split between the two PAYE jobs? Let's do that. Carry again, you that one, I think.
24:14 Speaker 03 Okay. Yeah, I would say that KH's daughter needs to check the two pay-as-you-earn codes she's got against her two employed jobs. Hopefully, the personal allowance has been split between the two, but she will need to double check both of those codes. If one of the jobs has the code 1257L, that means that that job, that one job, is getting all of her tax-free personal allowance. And the second job would probably be being taxed at BR, which is basic rate of 20%. But her self-employment income is completely separate, and so no tax will be taken on that. And if there's profits from the self-employment,
24:59 Speaker 03 most likely the daughter would need to do a tax return and pay tax on the self-employment profits.
25:04 Martin Lewis? And just to do that 1257L, which is the standard tax code, what you have to do, remember, so think 1257, have that in your head, pitch that in your head, everyone listening. Now add a zero at the end of it and you get 12,570. So 12,570 is the amount that you can earn tax-free a year. So adding a zero to the number gives you your tax-free allowance. Then I think, Rebecca, I'm going to do this one with you. Does the, is the L an old hangover? I think my Uncle Tony, Tax Tony, as I used to call him, my uncle, used to tell me that the L used to stand for lower rate, but we don't really have that anymore. Is that correct?
25:40 Speaker 04 Yeah, so historically, we used to have more tax allowances if you were married. Going back, you used to get more tax allowances if you had children, if you were elderly. Nowadays, pretty much everybody gets the same tax allowance. But what the L does is when the tax codes change because your personal allowance goes up, which is something we haven't heard for quite a while. Yeah, it's quite. But what HMRC will do is they will notify employers. Everyone on Code L, put it up by 21 or whatever the increase is. So it's a handy way of updating tax codes without having to issue a new notice of coding for absolutely everybody.
26:23 Martin Lewis? Gotcha. Right, Adrian.
26:25 Speaker 05 We're going to talk about the move to make tax digital. Give us an overview of that, Martin.
26:31 Martin Lewis? So this is where businesses, the self-employed landlords, will then have to manage their tax records and submissions online via Making Tax Digital compatible software. The aim, and I am putting this in quotes, is to make tax more efficient in real time and reduce errors. And I think perhaps we go straight in. Rebecca, I know you campaign on this and it's a big area for you. I'm going to go straight in with Theo's question. Do you think self-employed people are ready for Making Tax Digital? Seems like we're heading for a disaster.
27:10 Speaker 04 What a very interesting comment. So, yes, so in April, anyone with gross income, so that means your turnover from self-employment or your rent, the top line, of more than £50,000 in 2024/25, they will have to come into Making Tax Digital.
27:32 Speaker 04 Of that, that's around, that's a bit shy of a million people coming in, in April. Of those, probably around half to two thirds have actually got an accountant, who will be advising them, hopefully, and helping them get there. But that means around a third of those people, maybe up to 300,000 taxpayers, haven't got an accountant. And I think they're the people who, HMRC described them as hard to reach. They don't like reading things from HMRC. They will have had a letter from HMRC telling them about making tax digital, if HMRC believes that they are going to be affected by it this year. But they may not open the letter, they may not read it.
28:17 Speaker 04 They may read it and not really understand how it affects them. HMRC, to be fair, have been getting out, going to building shows and trade shows all over the country, and are really ramping up their communications with people who don't have an accountant or tax advisor. But it is inevitable, I'm afraid, that quite a few people are going to have a nasty shock when they maybe get a notice in August, it'll be, the first quarter, that they have got a penalty point because they haven't submitted their return. To be fair, HMRC have said there won't be any penalty points in the first year. They just want to help people get ready and get set up.
29:01 Martin Lewis? But I know of accountants who are near retirement, who have brought their retirement forward so they don't have to deal with this.
29:08 Speaker 04 Yeah, so do I, Martin.
29:10 Martin Lewis? That doesn't sound great, does it?
29:12 Speaker 04 It is, it is going to be, I think it's the biggest change for accountants ever. And self-assessment, I'm old enough to be, remember when self-assessment came in? That was pretty big, but I think making tax digitally is bigger. People will have to keep digital records and they will have to submit the totals of their transactions to HMRC using software once every three months. So the 7th of August 2026 is the first deadline. For you to submit your information for April, May, June.
29:45 Martin Lewis? That's if you've got turnover of over 50,000 though, isn't it?
29:48 Speaker 04 Yeah.
29:49 Martin Lewis? Other people will be brought in the next year and things like that.
29:51 Speaker 04 That's right. It'll go down to 30,000 in 27 and then down to 20,000 in 2028. So yeah, it's good that you're talking about it, Martin, because at least one or two people listening may not have heard of it so far and might now be rushing online, lots and lots and lots of information online, including YouTube videos explaining what it's all about.
30:17 Martin Lewis? I think the real question here, I think, Mark the Gas Man, it sums up what I've had a lot of when we put out the questions on this. Ways for people to not need an accountant or special software for making tax digital for sole traders when it comes in. Free software doesn't cover situations where it's a combo of PAYE and self employment, as free software often doesn't do the final submission part, only the sole trader part. Currently, I do it all myself with a spreadsheet, so really don't want to start paying for software just to be able to pay my taxes. I don't know, Rebecca, where you or Carrie have any solutions for Mark on that one?
30:54 Speaker 04 There are, there is software around. I'm not aware that free stuff will cope. Well, actually, to be fair, the PAYE, you won't need to submit because HMRC has already got that data from employers. So you may well find that if you are PAYE and self-employed, that some of the free software will do it. There are more companies coming available, getting approved by HMRC for making tax digital. So with luck, you'll be able to get a free product, Mark. I've been testing a variety of products for making tax digital so that I can advise my clients what's the best product for them and looking very carefully at the costs. And there are some really low cost products.
31:40 Martin Lewis? Rebecca, you can save them. Blame me.
31:42 Speaker 04 Okay, I will, I will. If you're a spreadsheet person, I absolutely recommend a company called Absolute Tax. They're less than fifty quid a year. They will definitely cover PAYE and self-employment and it's based around spreadsheets. Now, they'll probably now throw a book at me for overwhelming their phone lines, but I think it is an absolutely superb product. I'll name one other, so I'm not just picking one.
32:08 Martin Lewis? And you have no connection to these, do you?
32:10 Speaker 04 There is an app-based one called Untied, which to me looks very good.
32:13 Martin Lewis? You're not connected to either of them. Last question on this, Adrian, which I think is a really interesting one. We'll throw that one. Yeah, go on, you do it.
32:18 Speaker 05 So, if you're self-employed, would you be able to claim the cost of these digital apps needed to send tax to government?
32:25 Martin Lewis? Yeah, that's from Alison. Carrie, what do you think?
32:28 Speaker 03 Yes, I think she should be able to, because that cost is incurred wholly and exclusively for the purpose of her business. So I see no reason why she wouldn't claim the cost.
32:39 Speaker 05 Okay, savings tax then. What are we looking at here, Martin?
32:44 Martin Lewis? So, I mean, when you get interest on savings, it's taxable. There are a lot of allowances. So the majority of people in the country do not pay taxes on their savings interest. I mean, you can earn as a basic rate taxpayer a thousand pounds a year of interest a year before you pay tax. A high rate taxpayer, five hundred pounds of interest. If you're a non-taxpayer, your interest counts towards your basic personal allowance and there's a starting rate of savings anyway. Well, we'll start with Matt. Matt wants to say, "H M R C keeps incorrectly estimating my interest on savings I no longer have, to my detriment via PAYE tax code adjustments. Why are their calculations non-transparent? Why can't they show the accounts and values behind their calculations? And how do I avoid overpaying tax on savings?" Rebecca, it's a policy once. I'll go to you on this.
33:30 Speaker 04 Yeah, so essentially, yes, they will estimate and they will estimate based on the previous year or indeed might be several previous years. And...
33:45 Speaker 04 You're right, they are very slow. And I've just had a lady that I've I've helped out with this. Um. She's the wife of a client and she had had a rental property many years ago. And she stopped renting it out seven years ago. And um when the client came to me, said, oh, my wife's got a problem as well. Can we look at it? Uh. And she she says she's wrong and she's written and told them she hasn't got any rent. Uh. Over this seven year period and um they've continued to overtax her through PAYE on her private pension. Um. And so I wrote a letter for her. Uh. And she sent just before Christmas and actually I was staggered that she got a reply.
34:28 Speaker 04 Um. Early this week. So um you do need to go to H M C and tell them. Um. You do need to look at what they're doing. Now, I'm a bit surprised that you're saying it's not transparent. Because your your coding notice will say why they've reduced your tax code.
34:46 Martin Lewis? Um. But it won't detail each account individually, will it? If they've got a number of accounts, I think that's a lack of transparency.
34:51 Speaker 04 It'll very often be a made up figure, to be honest, around some. Um. Now, unfortunately for this lady that I was helping out uh uh on a voluntary basis. Um. We could not go back seven years and get that extra tax back. We've managed to get it back for four years. But that's why it's important you be persistent.
35:11 Martin Lewis? Write a formal letter, a a formal letter detailing this. Go through it. And it's the type of thing A I is actually good at helping you with, although obviously you check every single thing that goes on in there. To tell them that this is not on and you shouldn't be doing it and hopefully someone investigate. Let's do one last question on this and then.
35:27 Speaker 05 Okay. How does tax on savings interest get calculated on joint accounts? Does it get split equally? Or is there some calculation based upon, I suppose, respective tax codes or some?
35:37 Martin Lewis? It gets it gets split equally. What uh is the very simple answer on that one? There was another one from Jean Ralph I wanted you to ask.
35:43 Speaker 05 Okay. I had a two year bond mature last year, but as all the interest was added to the balance on maturity. It put my interest outside of ISAs over a thousand pounds. I therefore had to pay some tax. If the interest had been allocated to the two separate years, this would not have been the case. This this does not seem fair as the interest was quoted as per annum. I do watch this carefully and would have put more into an ISA if I'd realised.
36:07 Martin Lewis? Now, I wanted this question because it's something I've been looking at and campaigning on with my team, so hopefully Carrie and Rebecca agree with me. The rule on savings interest is the interest is crystallised for tax purposes in the year that you can access the interest. So if you have a fixed rate savings account, like a fixed savings bond, even if the interest is paid annually, if you can't take that interest out, then that interest has not accrued for tax purposes until the point you can withdraw it. And many fixed rates bonds where you have annual interest, you can only access the interest when you can access the money in the bond, in which case it vests for tax purposes in the year that it is all paid out.
36:51 Martin Lewis? Now, if you've had a bond that was paying you monthly interest into a separate account, then that would be vesting each time the monthly interest is paid. And it's very important, it's not whether you access the interest, it's not whether you take the interest, it's whether the interest is accessible. And I have concerns, based on the previous thing we've been talking about, which is why I've been campaigning on it, that HMRC is often being fed information from the banks for the people who aren't doing self-assessment returns, based on when the interest is paid, rather than when the interest is accessible. Carrie, have you seen this?
37:21 Speaker 03 Yes, I have, and I would completely agree that the interest is only taxable when you can access it, not regardless of if you access it. So it's really important when looking at these bonds to be clear and maybe ask the providers, when can you get access to that interest?
37:42 Martin Lewis? Yeah, so when you're getting a fixed rate savings account, what you need to look at is not when the interest is paid, but when the interest is accessible. Now, that may be good for you. Let's say you're two years away from retirement, you get a five-year bond that's paying a decent whack of interest, you get a five-year thick savings account, and it vests in retirement when you're paying a lower tax rate than you currently are, that would actually mean you paid less tax for the first two years if the interest was taxable and you're above your personal savings allowance. But equally, it could work the other way around if you were going to be a higher rate taxpayer later. So actually, choosing the bond sometimes based on when the interest will vest is important. And that was a tricky question for Carrie and Rebecca. Thank you so much. I'll be coming back to you in the pod only bit, which we'll be doing a little bit later. But for now, Adrian, I've got something for you. Play the theme tune.
38:32 Martin Lewis? Welcome to Money Mastermind. Adrian, the score stands at 15 right and 29 wrong in this three-option multiple-choice quiz, which means you are currently...
38:45 Martin Lewis? Better than random chance. Just. Though for this year, you're 1-0 down.
38:51 Speaker 05 Okay. Well, let's take my miserable performance as a whole.
38:55 Martin Lewis? Okay. Adrian,
38:56 Speaker 05 Yeah.
38:57 Martin Lewis? You were delighted at Christmas to receive a gift card for the Sensible Jumper Store, your very favourite brand of all brands out there.
39:04 Speaker 05 Yep.
39:04 Martin Lewis? So delighted, in fact, that you decided to wait until the absolutely perfect jumper came along before committing to using this valuable commodity. Sensible. Unfortunately, that was Christmas 24. You waited and waited, and it's only now you've found the one: a medium-weight, oatmeal-coloured jumper with a sensible crew neck, described as "ideal for layering", neither quite warm enough to be reassuring, nor thin enough to be flattering, in a fabric blend focused on durability rather than joy. Tragically, even though you've sensibly waited, when you go to pay, the retailer refuses, saying the gift card has expired. In that case, what are your legal rights? So you've got it, gift card's expired.
39:48 Speaker 05 Yeah, got it.
39:49 Martin Lewis? A, if you've got the original receipt, you can contact it and ask for a full refund, as gift cards shouldn't expire. B, if you've got the original receipt, you can contact it and ask for a refund, but it is allowed to take legitimate, reasonable administration and card costs off the refund. Or C, it's expired, you have no legal rights.
40:16 Speaker 05 I think it's two. You do get it, but they've got to take a bit off you for being slow.
40:24 Martin Lewis? So you're saying, you know, provided you've got your receipt, you can go back and they can take a £5 off for the card and £7 for admin of sorting it on your £100 gift card?
40:33 Speaker 05 Yeah, I can tell...
40:34 Martin Lewis? You can't tell anything by my voice?
40:37 Speaker 05 No, I can tell by the relish with which you repeat what I've just said, or summarise what I've just said.
40:41 Martin Lewis? You can't by just clarifying it?
40:42 Speaker 05 No, no, wait, no. Because I know I've got it wrong by the relish with which you said. Prove me wrong.
40:48 Martin Lewis? Well, if you've got an opportunity to change your answer, if you think that's right...
40:50 Speaker 05 No, no, I'm going with it. No, I'll stick with my convictions.
40:53 Martin Lewis? Play the guitar.
40:55 Speaker 05 There we go.
40:59 Martin Lewis? You were right, you were wrong. And yeah, you can't buy relish on a gift card either. The correct answer is it's expired. You have no legal rights. It's one of the reasons why I am anti gift card and gift vouchers. Not just the fact that if they go bust, if the firm goes bust, they're worthless, but many of them have expiry dates now. Now, the information about expiry dates should have been given before the purchase and it is good practice from the companies to have it printed on the card or the voucher on the email that you get. If expiry is based on clear terms and conditions, that is fine. And we don't, when the date starts also need to be clear, is it from activation or is it from gift? Now, a couple of tricks for you. If you've got gift cards and you've
41:40 Martin Lewis? not used them, try spending a little on them before they expire. They then often give you a new gift card for the remainder and that should hopefully have a longer expiry date. If yours has expired, well, with bigger stores, I'd ask them for an extension, particularly if it's a big brand. But finally, if it was unclear about an expiry date, then you could complain to your consumer rights. Then they may have been in breach of the law for lack of transparency about the expiry date and you might get your money back.
42:07 Martin Lewis? Okay, we're now into the pod extra bit and I'm delighted that both Carrie and Rebecca are staying on board with us. We're going to move next to your questions on inheritance tax. And before we get to that, I want to do my basics of the five key rules for inheritance tax, so you can understand it. So inheritance tax is of course a tax that the estate pays after you've died for passing assets on to those people that you have decided to leave it to, or if you are intestate without a will, that the state decides you should leave it to. So the first rule is that if you leave anything to your spouse or civil partner...
42:48 Martin Lewis? There is no inheritance tax payable on that. It is a total exemption. You can leave all your worldly goods, however valuable they are, to your spouse or civil partner, and it's fine. But note my language. Spouse means someone you are married to. Civil partner means someone you have gone through a civil partnership with. If you are cohabiting, so you're what's commonly known as a common law partner, you do not get this exemption. It is one of the biggest benefits of married life that you can pass your money across. And I've in fact now had hundreds of people who've got married after hear me talk about this because it's just such an important financial protection. And it's not just as an exemption. Wait till I get to another point in a moment. My second point is inheritance tax on money that you've left to other people,
43:33 Martin Lewis? not your spouse or civil partner, is paid above £325,000. Now, this includes property, vehicles, bank accounts, investments and insurance policies that you leave. But you can leave £500,000 if you're leaving your home to your descendants. Because on top of the £325,000 allowance, there's also the residence nil rate band of £175,000 combined. That's £500,000. So if you're leaving your home, your main home, to your children, grandchildren or adopted children, foster children, stepchildren, they are covered by this allowance, though it does start to reduce if the estate is worth over £2 million.
44:16 Martin Lewis? Now we get to that next big boon, big benefit of marriage or civil partnership. And the important bit about civil partnership is if you're one of those anti-marriage types, and there are many people out there, for whatever your reason, that's up to you, that you don't like marriage. Civil partnership confers the same legal rights as marriage, but without the baggage. You don't need a big ceremony. You just go and do it. You pay for the civil partnership, whatever it is, a couple hundred quid. You get it, and that's the legal document you need. And this is the crucial bit. Your unused allowances can be passed to your spouse or civil partner. The best way I can explain this is, let's say you're worth a million pounds all in, including your property. You leave everything because you pass away to your spouse.
45:01 Martin Lewis? Your spouse inherits everything because it's your spouse, it's inheritance tax free. When your spouse leaves everything to your children.
45:11 Martin Lewis? Well, they've got your £500,000 and their £500,000, that's a million pounds. So that's a million pounds of assets that can be left tax-free to the children. No inheritance tax to pay. That's the power. If you weren't married, when your partner left you everything, you would have used their £500,000 allowance. And therefore, when you go and leave it on, you've only got 500 grand. Now, as inheritance tax is 40%, 40% of £500,000 is £200,000. In that circumstance, being married would have saved you 200 grand. Final rule, gifting can help to reduce inheritance tax. If you live three to four years, then the amount of inheritance tax you pay on anything that you've gifted would reduce.
45:54 Martin Lewis? After seven years, there's no inheritance tax to pay on things that you have given away without reservation. Also, gifts from your income are fine, though defining income, we haven't got time to go into that today. And exactly how you do that, it needs to be regular gifts from income that's provable. And there are lots of other gift rules too, but that is my basics. The big change to come in inheritance tax is pensions are soon going to be subject to inheritance tax in a year or two. So that will count for your estate too. How did I do, Carrie?
46:24 Speaker 03 That nicely summarizes everything. And if I could maybe just add one point. It's not so much on inheritance tax, it's on spouses and wills. So if you have a married couple and they do not have wills in place. Lots of people assume that because you're married, your spouse will automatically inherit everything. And so the spousal IHT exemption will apply. Well, that's not the case. If you do not have a will, your spouse will only be entitled to the first £322,000 of your estate. And half of anything over that. So if you have a large estate, maybe of a million pounds. There could be inheritance tax on first day, even though you're married because you don't have a will.
47:09 Martin Lewis? Although, just as a tiny note, that's in England and Wales, the intestate rules. It's slightly different in every UK nation and you can go on gov.uk to see where your money would go if you died without a will in each of the UK nations.
47:22 Speaker 03 Yeah, that's correct.
47:23 Martin Lewis? Time for some questions then. I've got Elizabeth saying, inheritance tax please, I don't understand the £500,000 limit, and saying if a house is worth £350,000 and the rest of the estate is worth £100,000, is there inheritance tax to be paid?
47:37 Speaker 03 You only get the house value if it's lower than £175,000. So in that example of a house worth £100 and cash worth £350,000, there would be inheritance tax to pay.
47:50 Martin Lewis? That's worth knowing. And then we've got, hmm, Rebecca, we'll do this one with you. Most people are aware of the £3,000 a year free gift amount. I think I'm correcting saying that if the estate isn't subject to inheritance tax, then gifts above £3,000 are still tax-free, assuming the estate plus gifts is still under the inheritance tax allowance. So let me try and make sure I get this right in my head. You're allowed to give away £3,000 in total per year, separate from the, it coming from income, separate from everything else, separate from the seven-year rule. That's an exemption that you have. But the point of giving it away is it doesn't count towards your estate. That's what it means, isn't it?
48:31 Speaker 04 Yes.
48:32 Martin Lewis? So therefore, just working this through, if your estate wasn't going to pay tax anyway, the fact that you've given that gift is irrelevant because your estate isn't being taxable. What this would do is if you had a million pounds and you've given away £3,000 in a tax year, then your estate would only be £997,000?
48:51 Speaker 04 Yes, it would.
48:52 Martin Lewis? Okay. I hope that makes sense. So, hmm, which is your name, hmm, I think you are right in the way you're understanding it. We'll get, let's get a bit more complicated now. Inheritance tax and capital gains question. Property gifted in 2018 then renovated and valued after renovations. My mother-in-law was supposed to live in it. Or part of it, as there were fewer stairs, but due to ill health, she moved into a nursing home in 2021. She mainly lived with her children between 2019 and 2021, but still paid council tax, water, gas, electrical bills for her property. When will the inheritance tax start from? When does the CGT start from if she wants to sell? It was her forever home bought in 1963
49:37 Martin Lewis? for a thousand pounds, now worth much more, but under the maximum property tax threshold. So I think what's being asked is, is this inheritance tax, is this capital gains tax? And if she hasn't lived in it, does it count as her main property, Carrie?
49:51 Speaker 03 Well, it's an interesting question. If the mother-in-law has given away the property, because Leonard does start by saying property gifted, then that's when capital gains tax could be applicable because she has disposed of it. But if it was her main residence from when she bought it in 1963 until when she gave it away in 2018, then she should be able to claim main residentially and there wouldn't be any CGT up to that date. For inheritance tax purposes then, if she's gifted it in 2018, that was more than seven years ago, and providing she didn't go back to the property, which it doesn't appear that she did, that gift has now fallen outside of her estate for HT purposes.
50:34 Martin Lewis? So I've just reread it and you're absolutely right and I was wrong in the way I phrased it. The provided she hasn't gone back to the property, this is about a gift with reservation, isn't it?
50:44 Speaker 03 Yes, it is.
50:45 Martin Lewis? So you can't give your children your property and continue to live in it as if it's yours, rent-free. You'd have to pay a market rate type thing to count it as being a real gift.
50:54 Speaker 03 That's correct, yes. And the gift with reservation rules will apply forever on a gift, not just the seven years after a gift.
51:03 Martin Lewis? Right.
51:03 Speaker 03 So if the mother moved back into the property, maybe 12 years after she's gifted it, that gift is pulled back into her estate, even though she made it more than seven years ago?
51:14 Martin Lewis? Yeah, I mean, when you're giving it, you have to, I get, I'm sure you see it all the time, people ask all these questions. But if I do this, and I think the general answer is, if you're trying to find a workaround, it's a gift with reservation.
51:28 Speaker 03 Yes, it's got to be a complete gift, no strings attached, and you do not expect or hope to get anything from that gifted asset in the future.
51:38 Martin Lewis? Okay, we'll move on to capital gains tax now. Capital gains tax is the tax on profits if you sell an asset. So if you buy something for £10,000 and you sell it for £20,000, you've made £10,000 on it and that £10,000 is taxable. It's important to note that £10,000 is taxable in the year that you sold it. So you would pay the same tax, hopefully I'm right here, Carrie. If I bought something 10 years ago for £10,000 and sold it for £20,000, I would pay the same taxes if I bought it two days ago for £10,000 and sold it for £20,000.
52:14 Speaker 03 Yes, that's correct. There's no allowance for inflation or time held.
52:18 Martin Lewis? Okay, so that's important to understand, although you do have a £3,000 a year limit that you can make of capital gains tax without paying tax on it. Above that, the rates depend on your tax paying rate. So let's get on to Blake's question. Carrying capital losses from previous years, if I have a capital gain in the current year, can I use my allowance first or are carried losses applied before using in the year's allowance? Carrie, I think this is probably you again.
52:46 Speaker 03 The rule is that if you have brought forward capital losses from a previous year, they are offset against your current year capital gain after you have deducted your annual exemption of £3,000. However, if you'd realised a loss in the current year, current year losses come off your capital gain before the annual exemption is applied. Do you want me to give an example?
53:10 Speaker 04 The carry forward, it's worth noting, Martin, that carry forward is actually forever. Provided you've notified HMRC that you made a loss, that's always there.
53:20 Martin Lewis? Right, I think I understand this. So this is about, there is a strict order of what it counts. A loss in previous years will always come after your annual exemption, a loss in the current year will come before your annual exemption. Yes. I presume that you don't have any choice in the order of which the losses are used. Will a loss in the current year come ahead of a loss from a previous year? Yes. Right, okay, I think I've got that structure. So it's loss from the current year, annual exemption, loss from previous years. It's that's the order, is it? Yes. Phew, we got there. Tony, with capital gains tax, there are two rates, higher rate taxpayers and basic rate taxpayer rates. Do they count the capital gains as part of your income to determine whether you're a higher rate taxpayer?
54:04 Martin Lewis? I think the answer's no, isn't it Rebecca?
54:06 Speaker 04 They're not part of your income, but in determining which rate of tax you pay, the terminology I use is they sit on top of your income. So if, for example, your income is £20,000, then the capital gain of £10,000, if that was on top of your income, that would only take you up to £30,000. You'd be a basic rate taxpayer on the gain. So although they're not actually income, they sit on top of the pile of income and that determines which rates you're going to pay.
54:36 Martin Lewis? Okay, so let's just do this in a little bit more detail. Somebody earns £45,000, so they're roughly £5,000 short of the higher rate threshold.
54:46 Speaker 04 Yep.
54:46 Martin Lewis? They make a capital gain in that year of £20,000. So that means if you add the capital gain, that's £65,000. Are they a basic rate taxpayer because their income is at the basic rate? Or are they a higher rate taxpayer because their income plus the capital gain is in the higher rate?
55:05 Speaker 04 So the income plus the capital gain takes them into higher rates. So the first, say, £5,000, £5,270 of the gain will be taxed at the basic rate of capital gains tax. And then the remainder, just under £15,000, that will be taxed at the higher rate of capital gains tax.
55:25 Martin Lewis? Great, I understand. So it does total on top of each other. So if you earn nothing and you make a capital gain of a million pounds, you're going to be paying? The higher rate of capital gains on most of that million pound profit.
55:37 Speaker 03 On most of it, yeah.
55:38 Martin Lewis? Yeah, okay. And then the last one in this, Lindsay. I used inheritance to buy a bungalow when I was starting to struggle with the stairs. I moved out of the property in December 2023. It was my home for 40 years since 1983. Due to health problems, I was only able to get it on the market in August 2025. The property is just sold in January 26. Will I have to pay capital gains? I'd read somewhere that I may not have to. So she, it was her primary residence until December 2023, but she hasn't sold until January 26. So what is the point at which she left it for the capital gains exemption for her primary residence? Carrie?
56:19 Speaker 03 Well, she left it in December 2023, so her actual occupation ceased then. Because it's been her main residence, she gets a bonus last nine months. But that would still leave some time between December 23 and the sale in January 26.
56:38 Martin Lewis? And so I presume what happens in that case is any capital gains gain between those two periods would be taxable?
56:45 Speaker 03 Yes, I would suspect most likely. There are a few things that you would need to double check just in case there are any reliefs available. So if Lindsay is disabled or has gone into long-term residential care, that last nine-month bonus is actually extended to 36 months. In which case, if she qualified for that, the whole period of ownership would be covered by main residential relief and there would be no capital gains tax to pay.
57:16 Martin Lewis? You are good. I think that's what she's read somewhere, isn't it?
57:19 Speaker 03 I think potentially, yes. But again, it's very clear in the legislation. Lindsay would have to be disabled or have gone into a residential care home on a long-term basis. If she doesn't fit either of those categories, she would not get that extra concession.
57:35 Martin Lewis? And I don't know if you know what counts as being disabled in this case?
57:39 Speaker 03 Not off the top of my head, I'm afraid.
57:41 Martin Lewis? Fair enough. I think it was a brilliant answer anyway. Lindsay, that gives you something to research.
57:45 Speaker 03 Can I just add one other point there, sorry, Martin?
57:47 Martin Lewis? Yeah.
57:47 Speaker 03 It's to do with the timing. She says she sold the property in January 26.
57:52 Martin Lewis? Yeah.
57:53 Speaker 03 If she doesn't qualify for the extra 36 months and she only gets the normal nine months. She will have made a gain on that property that might be more than her annual exemption of £3,000. If it is, she has 60 days from the sale completing to report the sale to HMRC and pay the capital gains tax that's due.
58:14 Martin Lewis? So she needs to talk to her conveyancing solicitor, whoever sold this property for her, quite quickly about this issue and see what she can do. I would also say, Lindsay, I mean, there is a question. We're talking December 23 to January 26. House prices have not risen that, you know, astronomically during that period. So you are allowed to make £3,000 of capital gains. So it just just depend on, you know, and so let's just do this in in practical terms. What, how does she go about, she's going to go and have to get the property valued in December 2023. How do you do that? Because it's that or or nine months after December 20th, September 24.
58:57 Martin Lewis? If we assume she doesn't have this extra exemption, how does she get the September 24 valuation when she sold it in January 26? Who does that valuation?
59:06 Speaker 03 Well, unfortunately, Martin, the rules don't work that way. What you look at is she owned the property for 40 years. And let's say she owned it for 40 years but was out of the property for two years. She's owned it for a total of 42 years. You would take the gain and divide it by 42. Give her 40 years tax free, but if you like, two over 42 of the gain is what would be chargeable.
59:36 Martin Lewis? So, yeah, the 121st of the gains since 1983, house prices have risen astronomically in that time will actually be something significant. Yeah.
59:46 Speaker 03 Yes, yeah. Unfortunately, there's no way of taking into account the value when you left.
59:51 Martin Lewis? Okay. So, Lindsay, you need to be speaking to your conveyancing solicitor ASAP. Right, we're going to move on. We've got a final section on pensions and tax. Let's do that one. I've got Annie first. I have some spare income and would like to open a SIP. How do I find how much I can invest and not go over my annual allowance? So most people can put up to £60,000, as long as they have that much income, into a pension each year, as long as you've not taken any money out of your pension in the past in a way, because that can reduce your allowance. So how does she go about doing this practically, Carrie?
1:00:27 Speaker 03 Well, you made a good point there in terms of having income to support pension contributions. So the first point Annie needs to check is, what are her net relevant earnings? So earnings include employment income and profits from a furnished holiday let in previous years. So she's got to have earnings to support her pension contributions. And although the annual allowance is £60,000, if Annie's earnings were maybe only £30,000, the maximum she can receive tax relief on is the £30,000. Once she's checked that she's got enough earnings, you can go on to gov.uk and they have a really good calculator that allows you to calculate
1:01:10 Speaker 03 what annual allowance you have in the current year and plus anything that you might have carried forward from the last three years. But you're still always subject to that cap of net relevant earnings.
1:01:21 Martin Lewis? Thank you. Linda says, Rebecca, this one's yours, so keep your ears keen for it. My husband, who is 79 years old, has worked all his life, is constantly owing the taxman money. He paid the big stamp for years, national insurance, that means, and has a small £27 a month personal pension. They state that this puts him over the tax threshold, so he owes them every year. I'm at my wits' end. We need this pension, but the debt we have to pay them is getting ridiculous. We pay £100 a month towards the back tax, but we're never going to catch it up. Help, what can we do? I wrote to our MP, he was no help. Can you give us advice? So we've had someone go to their MP, now we're stepping it up to Rebecca Benneworth.
1:02:06 Speaker 04 Right, Martin. Well, I am a little bit puzzled by this question because if he's got a state pension,
1:02:14 Martin Lewis? Yep.
1:02:15 Speaker 04 that's almost the personal allowance. Let's say for argument's sake, it roughly is the personal allowance. So the only other income he's got is £27 a month, which works out at £324 a year. Now, if he's paying 20% income tax on that, that should be just shy of £65. So how we're getting to £100 a month is beyond me, Martin. And I, it sounds a bit as if this is old tax debt, that it's actually nothing to do with his current financial position, because if you're paying £100 a month, that's £1,200 a year.
1:02:54 Speaker 04 But you would only owe less than sixty five pounds a year.
1:02:58 Martin Lewis? I'll just throw a wobbler at something I thought of. If he's seventy nine, he could be on the old state pension. And if he's got the the extra secondary pension and from the old state pension, it could be more than the person allowance the state pension in its own right. But even so, it doesn't add up. But it it doesn't add up quite as badly, if you know what I mean.
1:03:15 Speaker 04 No, no, you're right. You're right. If he's seventy nine, he may well have um what was called SERPs. Um, so I think I think really, um, if your husband is seventy nine and you're on a low income, I think you should be in touch with one of the tax charities. Because somebody should be looking at this in a lot of detail to identify what's going on. It could be a mistake. Um, MPs are usually quite good at looking at these things. So you you might got a bit unlucky, but I would recommend.
1:03:47 Martin Lewis? But they're not technical tax experts, just like I'm not. And you can have general knowledge. But this is this is that older people tax charity, isn't it, that you mentioned earlier?
1:03:54 Speaker 04 Yes, Tax Help for Older People.
1:03:56 Martin Lewis? Okay, so Linda, please go to Tax Help for Older People. Jenny, um, hi, my partner cashed in a private pension. He received twenty five percent tax free and the rest was taxed at source before he received it. He's just had to pay another tax bill as the money went into his account and was therefore classed as income. What? We thought you should only be taxed once on the same money. Can anyone shed any light, please? Should the money be taxed twice? Before we answer that, an important note. Before you take your pension money, many people assume that you take it and twenty five percent of it is tax free and the rest is taxed. It doesn't work like that. It depends on the structure. So there's some structures, I always think of this like a Swiss roll. That if you're just taking your money out,
1:04:38 Martin Lewis? let's say you take a quarter of your pension money out and you just withdraw it. What happens? Like a Swiss roll is has some jam and lots of sponge. We'll call the jam is tax free and the sponge is taxable. You can only take a slice of the Swiss roll. So you take ten thousand pounds out, twenty five percent of it will be tax free, seven thousand five hundred pounds won't. If you just wanted to take the tax free amount first and take twenty five percent all tax free, then you would have to. Take the money out but be buying a drawdown or an annuity with the rest of the money. It's complicated, but the great news is you can go to PensionWise. Free one-on-one help. And I would strongly suggest you do that before you take any money out of your pension for the first
1:05:19 Martin Lewis? time to understand the potential tax implications because this can cost you thousands of pounds. But we'll go back to Jenny's question. It seems strange. He received 25% tax-free, the rest was taxed at source. He's just had to pay another tax bill as the money went into his account. Carrie, do you know what's going on?
1:05:37 Speaker 03 I suspect that the taxable sum, so ignoring the tax-free, 25% tax-free, but there may be 75% that's taxable, has maybe only been taxed at, say, the basic rate. So it's paid 20% tax. And if actually Jenny's partner is a higher rate taxpayer, there should be 40% tax paid on it. So there might be another amount of tax to pay on it. So it really comes down to when you're cashing in a private pension, ask the pension provider to tell you what pay as you are encoding notice they're applying to it. And much the way we've talked about earlier, checking your pay as you are encoding notices, they're just as important for pensions as they are for employment income.
1:06:20 Martin Lewis? And this is exactly the reason I said go and get advice because let's just make this really simple. If he has £60,000 in his pension and earns £20,000. If he takes £60,000 in year one, a quarter of that's £15,000. That leaves him £45,000 coming from the pension that's taxable. £45,000 plus his £20,000 income takes him as a higher rate taxpayer. So he's going to be paying higher rate tax on 15 grand of the pension. If he had taken 30 grand this year and 30 grand next year, then all the money, because it's crystallising in two separate tax years, all the taxable income would have been at the basic rate.
1:07:02 Martin Lewis? And that just gives you an example of quite the impact that tax can have on when you take your pension and why you should get advice first to make sure that you're not unnecessarily paying thousands of pounds on the tax bill that you wouldn't have needed.
1:07:18 Speaker 04 I think there's another thing, Martin, as well, that's worth mentioning, is that obviously it's clear that tax is operated on the taxable element by the pension provider. If you take your chunk out of your pension in, let's say, about the middle of April, the way PAYE operates is it may well assume you're going to have that income every month of the tax year, so you pay a very, very high amount of tax, which will be due back, but given it's April, you don't get it back till after the end of the tax year. So you're actually much better to take that money in February or March, because then most of the tax year is gone and it won't take too long.
1:08:00 Speaker 04 If you are overpaying on that withdrawal, then it won't take too long to get the money back.
1:08:05 Martin Lewis? And with that nugget of glorious information, I think it draws us to a close, which means it leaves only for me to say, thank you so much, brilliant both of you, Caramellen, Director of Opas Taxes Limited, and Rebecca Benneworth, Chartered Accountant and Tax Expert. I hope that has helped everybody.
1:08:26 Martin Lewis? Now, talk about a gear change, from the technicals of tax to the tactics of the traitors. Just before our show started, I was sitting in the studio, Adrian was interviewing Harriet, who's newly been released from the traitor's house, well, in a recorded sense, anyway. And as he isn't an avid viewer, they said, do you have anything you want to ask her? Of course I did.
1:08:45 Speaker 05 You're a published crime writer.
1:08:47 Speaker 06 Yes.
1:08:48 Speaker 05 Has this given you some ideas? Has this changed your whole take on humanity?
1:08:54 Speaker 06 I think I've been surprised by myself and quite how deep I got into it. And I think that there's definitely something to look at in that, how in the right environment, people can start to believe all sorts of things. And so I think that that could lead to an interesting novel. But, I mean, you know, what I do know is that people are capable, if I can imagine it, people are capable of it.
1:09:18 Speaker 05 Congratulations, you've certainly made an impact, Harriet. Lovely talking to you. However scrambling you found the whole experience, doing one interview after the next about it, it will scramble your mind more.
1:09:31 Martin Lewis? Harriet, I'm fascinated to know.
1:09:32 Speaker 06 Yes.
1:09:33 Martin Lewis? Right, I mean, you were absolutely superb and you gave us the moment of the series so far, when you went up and you called Rachel out and she was hiding behind there and her face dropped.
1:09:42 Speaker 06 Yeah.
1:09:43 Martin Lewis? Strategically, now looking back... If you could go back and speak to yourself then, what would you tell yourself to do? Because you had a very good chance of getting Rachel out. If you'd just kept it calm, I think.
1:09:54 Speaker 06 I think to try and keep calm. It would be not to lose my temper. I felt very isolated at that point. And I, yeah, I lost it. I didn't keep myself under control.
1:10:06 Martin Lewis? Do you think it was the breakfast table moment with Roxy?
1:10:08 Speaker 06 That, that, it shouldn't have happened. It shouldn't have happened. I shouldn't have done that. I wish I hadn't, you know, I've apologised to Roxy. I think we're good. I mean, we were both deep in game at that moment. But I think it did lose sympathy. And also because I had been so quiet about my suspicions of Rachel up until that point. I hadn't wanted to talk about it because I thought I would be able to keep her close. But, you know, smoke and mirrors bounce me. And it was, you know, that was game over for me from that moment.
1:10:38 Martin Lewis? I totally get what happened because I get very into my subject too. And I'm ready and you're getting all passionate and you'd built yourself up and you had your prayer erasure ready. You were going to give the speech and you started and someone cut you off. And you'd obviously been thinking about it all night. What am I going to say? How am I going to bring the breakfast table to me? And Roxy cut you off. And the narrative that you had and what you'd played out in your head was suddenly a screech to a halt. And that was what you were reacting about, wasn't it?
1:11:04 Speaker 06 Yeah, to be honest, yeah, I didn't take very well to being shushed. And I think that because she said, we've decided. And I, I, I think I said it at the table, I'm not a collective now. People couldn't speak, speak for me anymore. And I didn't want to be spoken for anymore. And that was why I saw red. But, you know, I wish I'd sort of game plan that and had worked out how not to do it. But, you know, we are where we are.
1:11:33 Martin Lewis? And that's it for this week. I would like to say that I am and I have always been 100% faithful. If you've enjoyed this week's pod, please tell your friends you've been listening to the Martin Lewis podcast and why not subscribe? And then your pockets will be pleased with you. We tend to put out a new episode every Thursday and Mondays too, in our Question Time podcast, where you can ask me absolutely anything and everything. And if you haven't enjoyed it, but for some reason you've decided to listen all the way to the end, that's your problem.
1:12:18 Speaker 07 Martin Lewis is the founder of MoneySavingExpert.com. But of course, other consumer and price comparison websites are available. You can get in touch with Martin's podcast production team by emailing martinlewispodcast at bbc.co.uk. The offers and rates mentioned in the podcast are correct at the time of recording. However, if you are listening on demand, it's worth double checking as details can date. Remember to subscribe on BBC Sounds and leave us a review however you listen.
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1:14:08 Speaker 09 Welcome to The Haunted Library. Join me, Colin Morgan, as I read Frankenstein by Mary Shelley.
1:14:18 Speaker 09 A story of science and ambition, loneliness and longing, and what it truly means to be human.
1:14:28 Speaker 09 Listen to The Haunted Library wherever you get your podcasts, or find us on YouTube.
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