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September Questions and Answers
Newsletter issue – September 2025
Q: My teenage child has a summer job this year. As they are under 18, do they need to worry about tax on what they earn?
A: Contrary to popular belief, children are eligible to pay tax just like adults. They rarely do because if they do earn anything, it is usually under the annual Personal Allowance of £12,570.
Some important things to note, though, are that under-18s should be paid a minimum of £7.55/hour and will need to pay National Insurance if earning over £242/week and aged 16+. Children (from age 14) can only work part-time until they are 18 (in England - it is 16 in Scotland, Wales and Northern Ireland). There are some exceptions, for example under-14s can work if they are performers or models.
Q: I have been cohabiting with my long-term partner for decades, but I've heard that could put us at a disadvantage when it comes to Inheritance Tax compared to couples who are married. Is this true?
A: Unfortunately, that is true. Married couples and civil partners get what is known as 'Spousal Relief'. This exemption means that when one partner dies, their entire estate can be left to the surviving partner without incurring any inheritance tax (IHT). Their personal nil-rate band (of £325k) also gets transferred, meaning when the surviving partner passes away, they can pass on £650k's worth of assets free of IHT.
If a primary residence is involved, the £175k residence nil-rate band also gets transferred, meaning the surviving partner will have an allowance of £350k if they pass the property onto direct descendants on their death.
Cohabiting partners are unable to benefit from this pooling of allowances, so there will likely be a larger IHT bill to pay when passing on assets upon their death.
Q: I'm in my early sixties and wondering if I should use my pension tax-free lump sum to pay off my mortgage?
A: This is a difficult question to answer, without having full knowledge of your financial situation. The main things to consider are:
The mortgage term and interest rate
The size of your pension pot and your retirement income need
If you believe that your pension investments will bear a lower return than your mortgage interest rate, then it would be worth clearing down your debt as your savings (pension) are growing at a slower rate than your costs (mortgage).
However, this reduces your pension pot which will affect long-term income. But you may prefer the peace of mind that you are mortgage free.
Please get in touch so that we can discuss your situation and explore the options available to you.
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