Readers’ surgery: Logistics of retiring, tax on gifts and when a pay rise could cost you

8 min Read Published: 10 Jun 2011

Today's readers' surgery covers a number of topics including state pension ages, tax relief on gifting farmland, when a pay rise could cost you and how to start taking your pension benefits.

As ever, keep the questions coming!

Reader Question 1:

I am 60 on 15 November this year, when will I be able to claim my state pension? I have worked since I was 15 with breaks when I had my family.

My response:

The date at which you can claim your state pension is based on your date of birth, as not everyone has the same retirement age.

Unfortunately you do not state whether you are male or female as this will also make a difference. For men the current state retirement age is 65. But for women the state pension age is increasing from 60 to 65 between April 2010 and November 2018 and there will be an accelerated increase between April 2016 and November 2018.

So for women their state pension age depends on when they were born. Fortunately there is a ‘state pension age calculator‘ which cuts through these complexities and gives you your exact retirement date. So I’ve run the calculator for you and the results are given below:

Male born 15/11/1951 – retirement date Tuesday 15th November 2016 (at age 65)

Female born 15/11/1951 – retirement date Saturday 6 July 2013 (at age 61 years and 7 months old)

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Reader Question 2:

Is it possible to realise a gain and pay CGT for tax year 2010/11 at 18% - when farmland was gifted to my spouse?

The farm in its entirety will be sold to a third party later this year & I anticipate paying CGT on my share at 28%.

My response:

I take it from your question that you gifted farmland to your wife last year with a view of trying to mitigate tax, however, you didn't actually sell it on to a third party or realise any gain?

As you are probably aware gifts between spouses are exempt from capital gain tax (CGT). However capital gain tax allowances are a 'use it or lose it' tax allowance. The fact that we are now in the 2011/12 tax year means that any gains which are crystallised now will count against 2011/12 allowances.

So unfortunately the answer to your question is 'no'. What I would say is that it is worth seeking financial advice if you are trying to mitigate tax on the sale of your farmland as there are various tax reliefs that may be applicable to your circumstances e.g. entrepreneurs relief. Acting hastily without professional advice could end up landing you with a larger tax bill than you could have otherwise had.

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Reader Question 3:

I would like to stop paying into a pension and receive a lump sum can you tell me how I go about doing this?

My response:

The simplest way to do this is to contact your pension administrator/trustees and state your intention. If it is a company pension that you are paying into then your company's HR department will be able to point you in the right direction.

If you have a personal pension then you can stop paying into the plan by contacting the pension company who administer it. Also, ask them for the relevant paperwork in order to start taking your pension benefits. But.............

Why do you want the lump sum? Do you really need to take it now? How old are you as you can't access your pension pot until you are at least 55? As you can only take up to 25% of your pension pot as a tax-free lump sum, what do you plan to do with the rest of it, buy an annuity or go into what is know as 'drawdown'? (as the rest of your pension pot will have to be used at some point to provide you with a retirement income).

The point is that pensions aren't as flexible as we'd all like them to be and without knowing your full circumstances I can't tell you what your specific options are. The problem is that a number of decisions relating to pensions are irreversible once you make them. It may not be in your best interest to draw pension benefits now, but once you do it can't be undone. So seek independent financial advice first before doing anything.

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Reader Question 4:

Two employees have a similar take home pay, one is in the lower tax bracket, say £38000 but the second is in the higher tax bracket, say £52000. What is the advantage for the business or individual to keep paying the higher tax rate to the second individual if the take home pay is similar?

My response:

I'm a bit confused with your question. The difference between a salary of £38,000 and £52,000 is huge?? For example, an employee (under 65) earning £38,000 a year will take home (after tax) £2,350.20 a month. If they earned £52,000 they would take home £3,064.08 after tax.

From a business perspective why would you want to pay more for something than you need to? And from an employee perspective why would they settle for £38,000 when you could get £52,000?

If your question had been 'is there any disadvantage in giving an employee being paid say £43,500 a year (when they would be 40% tax pa) a £1,000 a year pay rise' then the answer 'there might be'. For example they will be taxed at 40% on the pay rise so the difference in monthly take home pay may only be small (around £48). But the gross value of the pay rise may be taken into account when they are assessed for any benefits they are claiming etc. Also bear in mind that under current proposals child benefit will be axed from 2013 for families where either parent earns more than £44,000 a year. Given that child benefit is currently worth at least £80 a month you can see the potential issue. But as I said this potential change to the child benefit system is still being discussed by the government – so nothing is set in stone yet.

Enjoy the weekend sunshine and best wishes

Damo

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