Student loan repayments (SLR) are normally deducted under PAYE from employment income so many people incorrectly assume that SLR are not due on other ‘unearned income’ such as rent or pensions.
SLR will in fact be payable where the unearned income exceeds £2,000 per year and the taxpayer is required to submit a tax return.
Unearned income includes:
· interest from savings (before deduction of the personal savings allowance);
· profits from letting (after deduction of property allowance); and
· pension income.
Once the unearned income exceeds £2,000 the whole amount is subject to SLR deducted at 9%.
Eve’s property
Eve earns £21,000 per year and has a plan 1 student loan for which the SLR threshold is £22,015 for 2023-24 so she is not liable to pay SLR on her earnings.
However Eve lets a property for £12,000 per year and after deducting expenses makes a profit of £3,000. Eve must include these figures on her tax return and pay SLR at 9% on rental profits of £1,985 (21,000 + 3,000 – 22,015) as the total property income profits exceed £2,000.
Adam’s pension
Adam is aged 60, earns £27,000 and has a plan 2 student loan for a teaching course undertaken as a mature student. The repayment threshold for plan 2 loans is £27,295 for 2023-24 so Adam is not liable to pay SLR on his earnings.
Adam has also started to draw a pension of £4,000 per year which is taxed under PAYE but is not subject to the SLR at source as no Class 1 NIC is due on that pension income.
However Adam has sundry trading income of £2,500 from selling free-range eggs from his hens. As this exceeds the trading allowance of £1,000 Adam must submit a tax return to report that trading income.
Adam’s additional income reported on his tax returned is £6,500 (£2,500 + £4,000) and he will have to pay SLR at 9% on £6,205 (27,000 + 6,500 – 27,295).
