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 ...
If you want to grow your pension you should seek professional advice!
Under the current Conservative government, this threshold is set to remain unchanged until 2028, resulting in an estimated additional 1.6 million pensioners paying taxes. This is known as the 'stealth tax' and it's important to know how to beat it and grow your pension.
"One of the best ways is by utilising tax-free savings options such as Individual Savings Accounts!"
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.
Until next time ...
HELEN BEAUMONT
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about how to grow your pension, it may be a great idea to give me a call on 01908 774323 and let's see how I can help you.
Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.
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