All sorts of people can be liable to repay a student loan to the Student Loan Company, including those who are drawing a pension, are self-employed or a landlord.
Student loan repayments (SLRs) are normally deducted from salary by employers under PAYE, so many people assume that SLRs are not due on rental income or pensions. This is not correct! There is also the odd twist that SLRs will only be due from rental or pension income if the taxpayer needs to file a self-assessment tax return and the taxpayer’s ‘unearned income’ exceeds £2,000 for the year.
Unearned income includes:
• profits from letting (after deducting £1,000 property allowance, where appropriate);
• profits from trading (after deducting £1,000 trading allowance, where appropriate);
• pension income. The £2,000 of unearned income is an ‘all or nothing’ threshold. Once that unearned income exceeds £2,000, the whole amount is subject to SLR, deducted at 9% (or 6% for post-graduate loans).
Example 1
Susan earns £20,000 per year and has a Plan 1 student loan, for which the repayment threshold is £20,195 for 2022/23. She is therefore not liable to make SLRs on her earnings. However, Susan also has a let property, which generated profit after expenses of £2,400 in 2022/23. She needs to register for self-assessment to report her property income and expenses.
On submission of her tax return, Susan will be liable to pay SLR at 9% on rental profits of £2,205 (20,000 + 2,400 – 20,195) as her total property income profits exceed £2,000. This SLR (£198.45) will be payable by 31 January 2024.
Example 2
Leslie has a Plan 2 student loan, which has a repayment threshold of £27,295 for 2022/23. He has salary of £27,000, which is under the SLR threshold, so no SLRs are deducted. He also draws a pension of £4,000, taxed under PAYE, but which is not subject to the SLR at source.
However, Leslie makes £2,500 profit from a small trade, after deducting the trading allowance of £1,000. This means he needs to register as self-employed and complete a tax return, to report that trading income.
As Leslie’s total unearned income reported on his tax returned is £6,500 (2,500 + £4000) he will have to pay a SLR at 9% on £6,205 (27,000 + 6,500 -27,295), i.e. £558.45.
We can help you calculate your SLR liability to avoid any nasty surprises.