As a retiree, you may have noticed that your state pension has increased to £11,502.40 this year. While this may seem like good news, it also means that you are getting closer to the frozen tax-free allowance threshold of £12,570 ...
With the new ISA rules that came into effect on the 6th of April, you can now spread your annual allowance of £20,000 across multiple ISAs of the same type. This means that ISAs should be your first port of call for tax-free income. By taking advantage of ISAs, you can reduce your taxable income and avoid being pushed into a higher tax bracket.
But that's not the only way to reduce your tax bill and grow your pension. You can also make additional contributions to your pension. Even if you have already accessed some of your pension funds, you can still make contributions up to a certain limit each year.
This is known as the 'money purchase annual allowance' and it's usually set at £10,000. By contributing to your pension, you can reduce your taxable income and potentially move into a lower tax bracket.
If you have not been able to contribute much to your pension in recent years, you can also take advantage of the carry-forward rules. This allows you to use any unused allowances from the previous three tax years, potentially boosting your pension balance by up to £200,000. This is a great way to catch up on your retirement savings and secure a comfortable retirement.
According to Standard Life, the average retiree in the UK has a pension pot of £131,000, which may not be enough to provide a comfortable retirement. In fact, half of retirees express regret about their financial preparation for retirement.
This is why it's crucial to take control of your pension and make the most of your annual allowance. By doing so, you can potentially increase your monthly income in retirement and avoid any regrets.
Another way to reduce your tax bill is by giving money to charity using Gift Aid. This allows the charity to receive a 25% boost from your donation and the total amount is deducted from your taxable income. By giving to charity, not only are you helping a good cause, but you are also reducing your tax bill and potentially moving into a lower tax bracket.
It's important to note that it's not a given that you will automatically get the full amount of tax relief on your pension contributions. This depends on your level of income and whether you are a basic, higher, or additional-rate taxpayer.
It's always a good idea to seek professional advice to ensure you are making the most of your pension contributions and reducing your tax bill.
If you'd like to find out more about anything I've written here, do call me on 01908 774323 or leave a comment below and let's see how I can help you.