1. Your state pension
Your state pension forms part of your income and, as such, is fully taxable. Unlike a private or company pension, it is always paid to you without any tax taken off.
Of course, for many people on low incomes the state pension is fully covered by their annual personal allowance (£11,850 in 2018-19), so there is no tax for them to pay.
However, for the better off, the state pension has to be included with other income when calculating if income tax is due.
2. Sales on auction sites and car boot sales
If you trade on an auction site such as eBay or at car boot sales – for instance by making things and selling them, or buying goods and selling them on at a profit – this is a taxable activity, and you will need to pay tax on any earnings that exceed your allowances.
You may also have to pay national insurance if you are below state pension age. One-off sales, or selling your unwanted junk or cast-off clothes, does not count as trading, so there is no tax to pay in those circumstances.
More on tax-free earnings
Do you sell goods at a car-boot sale or on eBay, or rent out a room in your house for a few weeks? Then a new tax allowance could help you, says Paul Lewis. It also covers small amounts of income from freelance work such as writing, hairdressing, painting or babysitting. Since April 2017, up to £1,000 of property income and another £1,000 of trading and freelance income is completely tax-free.
If your turnover in the tax year from either of these activities is less than £1,000, you do not need to declare it or pay tax on it. But you must keep records. If turnover is more than £1,000 on either, then you must register for self-assessment and declare it. You can then choose to deduct the £1,000 from your turnover and pay tax on the rest, or work out your profit in the normal way and pay tax on the excess.
The rules are complicated – for example, you cannot use the property allowance with the Rent a Room scheme. Find out more, at gov.uk.
3. Your children’s savings accounts
If a parent gives money to their own child and the interest comes to more than £100 (or £200 if both parents give the money) it is taxable as if the money belonged to the parent – so potentially at the higher or additional rate if the parent is a high income taxpayer.
This is to prevent parents transferring all their own savings into the names of their children to avoid tax. All the income is taxable at the parent’s rate and not just the amount over £100.
Money given to children by other parties, including friends, grandparents and godparents, is taxable as the child’s. Children have an annual personal tax allowance just as adults do (£11,850 in 2018-19), so although the money is liable to income tax, in practice, most children’s savings will never breach their annual allowance and they can receive the interest tax-free.
Parents need to complete form R85 to ensure the interest on their children’s savings accounts is paid gross.
Parents wanting to give money to their children can avoid any potential tax charge by using Junior Individual Savings Accounts (JISAs), which are tax-free.
4. Renting out any part of your home
Money that you accept for the use of any part of your home, be it renting out a room in your house, having a paying guest via a holiday rental website such as AirBnB, or allowing someone to park in your drive, will form part of your income and therefore be liable to income tax.
The exception is room rentals under the Rent a Room scheme – whereby you can receive up to £7,500 a year free from tax by renting a room in your home to a lodger.
The tax exemption is automatic and you don’t need to do anything, such as register.
5. Offshore accounts
UK residents who pay tax in the UK, and who hold savings accounts overseas or in the offshore branches of UK banks, need to pay tax on them just as if the accounts were in the UK.
People may want to hold money overseas for any number of reasons, and one may be that they receive the interest without tax taken off. This may suit their cash flow needs. However, it does not mean that the accounts are not taxable, and the income from them must be declared like any other income.
More on assets outside the UK
If you have undeclared assets outside the UK that bring in an income – cash, shares, property – then tell HMRC before 1 October 2018, says Paul Lewis. That could include retirees with holiday homes or people who have worked abroad and not brought all their assets home.
Those who declare before the deadline will be treated more leniently than those who continue to hide things. It will help if you can show that you had inadvertently not mentioned them and did not realise UK tax was due. You will have to pay the tax due, plus interest. If you are charged penalties, you can appeal. Find out more at gov.uk.
And here are five things you don’t have to pay tax on:
1. Financial gifts
There is no tax to pay on the giving or receiving of any sum of money as a gift. Anyone making financial gifts needs, however, to be aware of future implications – for instance, inheritance tax issues if their gift is not exempt under the annual rules, or they don’t live for seven years after making the gift.
They also need to be aware of ‘deliberate deprivation’ rules if they should need long-term care or wish to claim benefits in future. There is, however, no tax to pay on the gift itself.
2. Gambling winnings
There’s no tax to pay on lottery winnings, or on winnings at casinos and bookmakers. Payments to Exchequer are these days accounted for from the profits of the gambling operator.
If you share your winnings with others, you could get caught in the inheritance tax or care fees net – as you can with any financial gifts (see above). Lottery and football pools syndicates can avoid these potential tax and benefits implications if they have a formally drawn-up syndicate agreement.
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3. The sale of your personal residence
You can sell a house at an eye-watering profit with no tax to pay at all as long as the property is your principal private residence.
If you own any property that you yourself don’t live in, whether it be a second house used as a holiday home or a buy-to-let investment, or you just prefer to live somewhere else and pay rent, be prepared to pay capital gains tax on any increase in the value of the property you don’t live in, subject to available allowances and reliefs.
4. Profits on the sale of some valuable antiques
The sale of valuable assets, such as antiques, could be liable to capital gains tax (subject to your allowances) if they have increased in value while you have owned them. The exception is so-called wasting assets.
An asset is a wasting asset if its useful life when you bought or acquired it is likely to be 50 years or less. That will mean most of your personal possessions, such as clothing and household bits and pieces unless you’ve furnished the house with Chippendale.
However, all machinery is automatically treated as having a life of 50 years or less – no matter how ancient or valuable. So, all machinery is classed as a wasting asset. This includes vintage and classic cars, antique clocks and antique guns, so no tax is payable on their disposal unless they have been used for business purposes.
5. Old motor vehicles
You don’t have to pay vehicle excise duty if your car is an “historic vehicle” – made before 1 January 1974 – if it’s an electric vehicle, or if you’re disabled.
If your vehicle would normally be liable for tax but you aren’t using it and you keep it off the road, you also can avoid paying tax by applying for a SORN (Statutory Off Road Notification) exemption from the DVLA. If you don’t have a SORN, you still need to pay the tax or face a penalty, even if you never drive the car.