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Any Answers answered: State pension and interest relief

29th Dec 2017
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In this Any Answers Answered left hidden under the Christmas tree from December, TaxTV hosts Giles Mooney and Tim Good tackle questions from the AccountingWEB community about national insurance contributions and the state pension, and interest relief from a personal property.

To watch the full video of Good and Mooney answering readers’ questions, click here or scroll down to the bottom of the page.

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National insurance contribution to get state pension

The first question from AccountingWEB regular Anne Accountant is a fairly common one, but according to Giles Mooney its “a hugely complicated area” due to the different time scales.

The AccountingWEB member wants to know why their client has to make 44 years National Insurance contributions to earn the full state pension.

“He was advised he has 39 full years of contributions which will earn him £137.59 per week but he has to make another 5 years of contributions before 2027 to get to the maximum of £159.55,” explained Anne Accountant.

The AccountingWEB member thought it was 35 years but the client was told they need 44 years. The question, effectively, is how can it be 39, 35 or 44?

For Tim Good the question is a little more complicated than at first sight. While the general presumption is that both men and women must clock 35 years contributions to qualify for the full single tier state pension, this requirement actually replaced the lower figure of 30 years which Gordon Brown introduced.

Good explained: “Gordon Brown changed what previously was a system based on gender, under which men had to clock up 44 years (the figure quoted in the posting), women 39 years. So before Gordon Brown, we were looking at 39 for women, 44 years for men.”

“The 44/39 requirement, in fact, continues to apply despite the reduction to 30 years and then the increase to 35 years if you were born before the 6 April 1945," Good concluded.

And that's why Anne Accountant’s client is not yet entitled to the full pension. 

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Mortgage interest from a personal property

The second question comes from the splendidly named reader Super Clive 10. The question is to do with a married couple who have a mortgage on their home in joint names. They have property portfolios of three buy-to-lets owned jointly and five owned solely by the husband.

Super Clive 10 asks: "We are looking to introduce the mortgage (and therefore interest) from their home into the lettings businesses.

"However, can the mortgage on their home be introduced solely by the husband, and the interest offset against his five properties, or does it have to be introduced on a 50:50 split?"

The question itself worries Mooney as it opens up a "three-hour lecture" for the duo could work their way through.

Leaving aside whether the loan interest is allowable at all, Good said, “If the interest is incurred for the purposes of the letting business then the revenue should allow all of that interest against the property letting business and not just half of it. But provided the interest is paid by the husband.”

“So the mortgagee would require the loan to be in joint names. But if it is paid by the one that has the business and is claiming tax relief in that business for the interest then the revenue should allow the whole of the interest and not just half of it.”

Good then moved on to the point that garnered the most reaction on Any Answers: whether you can take the interest you are paying on an existing mortgage on your main residence and set that against property.

As many AccountingWEB members pointed out, the answer is no.

“However,” Good added, “it is nevertheless possible in some circumstances to obtain tax relief on the interest, but only where you remortgage or take out the first mortgage on let's say your main residence in order to finance the property letting business.”

“The whole point is property letting businesses qualify for tax relief on expenses in the same way as other trading businesses and if the interest was incurred, wholly and exclusively for the purpose of the trade (the property letting business), then you can claim relief.”

Good and Mooney test a few other examples to illustrate why the answer to Super Clive 10’s question is a simple no.

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Watch the full video here


Replies (4)

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By Arbitrary
08th Jan 2018 10:49

State Pension NIC Contributions.

If I was born before 6th April 1945, I would now be 72 years old and have been entitled to my state pension before 6th April 2010. How is this person who is being asked for further 5 years contributions before 2027 affected by this 39/45 year rule? I have not seen the original Anne Accountant post.

I don't get it.

Thanks (0)
Replying to Arbitrary:
By ChrisCrouch
09th Jan 2018 11:23

Looks like the client is already over the state pension age, and was also born before 6 April 1945.

Despite the new state pension rules, they're still receiving state pension under the old rules as they reached state pension age before 6 April 2016.

The guidance here is really useful:

In particular, the section about the starting amount being less than the full amount of the new state pension.

"each ‘qualifying year’ you add to your National Insurance record after 5 April 2016 will add a certain amount (about £4.55 a week, this is £159.55 divided by 35) ". Adding 5 further qualifying years should add £22.75 a week (5 x £4.55) to the pension entitlement, and bridge the gap between £137.59 and £159.55.

So despite the fact he's probably already retired, he won't get the new amount of £159.55 until he earns enough to add 5 further qualifying years.

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By pauljohnston
08th Jan 2018 11:04

The answer was not that helpful and as Arbitrary has pointed out does not appear to add up.

Tim if you are reading this please can you give birthdates for when the different rules apply. Or indeed anyone else.

Thanks (1)
By David Heaton
11th Jan 2018 15:56

Anyone born before 6 April 1945 will have reached state pension age before 6 April 2010, under the old 44/39 rules. Once you reach SPA, you cannot be liable to pay primary Class 1 or Class 2 NICs, so you can't add more qualifying years by carrying on working and earning. You might have been able to add Class 3 for a few extra years, or indeed Class 3A while it was open, but the time for that is now in the past.

Those who reach SPA under the new rules after 5 April 2016, who need 35 qualifying years, will only need 35 (unless a future government moves the goalposts again ...). Until they reach SPA, they pay Class 1, 2 or 3 to add qualifying years, and Class 3 can be paid for a few years after SPA to increase entitlement, but only if there are fewer than 35 on the record. If there are 35 on the clock already, any subsequent Class 3 payments should be returned by HMRC. The only oddity of the new rules seems to be that new Class 1 can add a full year of the new state pension and displace from the 35 an old year of contracted-out NICs that would have given a lesser entitlement to a foundation amount.

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