Increasing numbers of higher-earning workers in the UK are becoming used to more tax at higher marginal tax rates
. The Office for Budget Responsibility estimates that 2.5 million workers will be drawn into the higher and additional rate bands by 2027/28.
In funding retirement, however, savers can take a more proactive approach to tax efficiency. Even the majority who only envisage paying only the basic rate on their pension income can structure their finances so that their retirement assets and income will be less depleted by contributions to HM Treasury.
He continued: “And looking at the permafreeze and even reduction of many tax thresholds, this is a reminder not just of utilising available exemptions as carefully as possible - but also of using ISAs and structuring pension access to afford further protection against rising taxation.
Personal tax allowance An individual in retirement with the full state pension of £10,600 per annum, can receive a private pension income worth £1,970 a year before they hit the personal tax allowance of £12,570. Investment income and capital gains From a non-ISA investment portfolio, one can also draw income from dividends up to £1,000 and £6,000 in capital gains - allowances that fell in April this year and are due to halve again to £500 and £3,000 next April.
Latest State Pension News The importance of pensions and ISAs The 25% ‘tax free lump sum’ is a well-documented tax benefit of private pension saving. As we have seen, a drawdown strategy can also be calculated to keep annual income below a tax threshold - whether that is to avoid entering the basic, higher or additional rate bands.
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