Minimising tax in Retirement

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The new pension freedoms provide increased flexibility and more scope to structure your income to suit your actual needs and tax position.

Considering your various pensions, investments and annual tax allowances together allows your retirement income to be as tax efficient as possible.

Some useful ideas are detailed below:

Personal Allowance

Everyone has a personal income tax allowance (£11,000 for most people in 2016/17). You can therefore potentially draw up to this amount from your pension without incurring any income tax. However, other sources of income may use some of your allowance so careful planning is required.

Tax-free pension lump sum

From age 55 you can take up to 25% of your pension fund as a tax-free lump sum. You can therefore supplement your income by drawing from this cash.

Tax-free income from ISAs

A substantial tax-free income can be generated from such investments

Capital withdrawals from other investments

You can effectively boost your income by selling investments held outside of an ISA and you won’t pay any tax if the gains are within your annual capital gains tax (CGT) exemption. Your personal CGT allowance for 2016/17 is £11,100.

Dividend allowance

From 5 April 2016 the first £5,000 of any dividends you receive will be tax free.

Tax-free savings interest allowance

From 6 April 2016 the first £1,000 of savings interest will be tax free for basic rate taxpayers and £500 for higher rate taxpayers.

Investment Bonds

Up to 5% of your total payments into a Bond can be withdrawn each year for up to 20 years without you incurring any immediate tax liability.

If you would like a review of your own position please contact Sue Stephens.