5 WAYS YOU CAN REDUCE TAX LIABILITY IN RETIREMENT When you retire, there are a lot of financial decisions to be made. But one important question is often overlooked: How much tax will I pay? How and when you access your pension, savings and investments can have an impact on your tax liability. It should be one of the areas you consider as you approach retirement. These five ways could help you reduce tax liability. 1. THE PERSONAL ALLOWANCE The Personal Allowance is the amount of income you’re entitled to receive tax-free each year. For 2020/21, it’s £12,500 for the majority of people. The Personal Allowance covers all forms of income. Once you factor in all income sources in retirement, the total will likely exceed it, but it provides a base for building a tax-efficient income.
worth more than £6,000 (excluding your car), a second home, and shares that aren’t held in an ISA. However, there is an annual taxfree allowance, for individuals it is £12,300. In retirement, this can be a useful way to increase your tax-free income.
5. DIVIDEND ALLOWANCE If you’re invested in companies that pay a dividend, the Dividend Allowance can boost your income without affecting the amount of tax you need to pay. This is on top of any dividend income that falls within your Personal Allowance. For 2020/21, the dividend allowance is £2,000. It can 2. PENSION WITHDRAWAL TAX-FREE ALLOWANCE boost your retirement income without increasing If you’ve been paying into a Defined Contribution tax charges. Using a combination of saving products, such as pension, it will usually become accessible when you’re 55. This includes 25% available to withdraw personal pensions, stocks and shares ISAs and general saving accounts, it may be possible to tax-free. achieve the retirement income you want while 3. WITHDRAWING FROM ISAS reducing tax liability. ISAs offer a tax-efficient way to save and invest. Each tax year, adults can add up to £20,000 to ISAs.Through an ISA you can either save in cash, earning interest, or invest to hopefully deliver returns. The key benefit is that interest or returns earned aren’t taxed. As a result, withdrawals can supplement your income without increasing your tax liability. 4. CAPITAL GAINS TAX ALLOWANCE Selling certain assets for profit can result in Capital Gains Tax, this includes personal possessions T. 01273 774855 E. advice@pembrokefs.co.uk W. www.pembrokefinancial.co.uk
If you’d like to discuss your tax liability and to ascertain if there are allowances that apply to your situation please get in touch. SHOREHAM’S PREMIER INDEPENDENT FINANCIAL ADVISERS The Financial Conduct Authority does not regulate tax planning. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on individual circumstances.
Marlborough House, 102-110 High Street, Shoreham-by-Sea, West Sussex BN43 5DB Keith Relf & Keith Bonner - Managing Partners
Pembroke Financial Services Limited is Authorised and Regulated by the Financial Conduct Authority. We are entered in the Financial Services Register under number 228341, www.fca.org.uk. Registered and Incorporated in England & Wales at 30 New Road, Brighton, East Sussex, BN1 1BN under number 2518721. The FCA does not regulate National Savings, or some forms of Mortgage, Tax Planning, Offshore Investments or School Fees Planning.
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