Tax-Efficient Retirement Income
When it comes to safeguarding your retirement savings, the key to securing a comfortable and financially sound retirement lifestyle lies in astute tax planning. We understand that it’s not merely about saving for retirement; rather, it’s about optimising your wealth to minimise tax burdens and maximise your retirement funds. The objective of retirement tax planning is to strategically use available tax allowances and reliefs early on, ensuring that you pay the least amount of tax possible in retirement.
Harpur Wealth Management, based in Bedford, has been helping clients with retirement tax planning for over a decade now. Our team of advisors specialises in providing personalised guidance and advice tailored to the unique circumstances and goals of each client. In the following sections, we consider the crucial aspects of tax planning, with the goal of securing and enhancing your financial future.
Tax Allowances and Reliefs
At Harpur Wealth Management, we take a personalised approach to help you create a retirement plan that truly fits your needs. We understand that each person’s financial situation is unique, and the way your investments are taxed can have a big impact on your retirement income.
For instance, when it comes to drawing income during retirement, you should know that pension income withdrawals are taxed at the highest income tax rate, while ISAs are tax-free but could affect your Inheritance Tax planning. So, it’s crucial to carefully think about which assets to use first as you navigate your retirement journey.
Additionally, you’re entitled to various tax allowances, which we take into account when planning your retirement income. For the 2023/24 tax year, here are the current allowances and reliefs you should be aware of:
|Personal Allowance:||£12,570||This is how much you can earn before paying income tax. Anyone earning over £100,00 will see the allowance diminish by £1 for every £2 earned.|
|Starting Rate for Savings:||£5,000||This is what you can earn in interest before paying tax. The sum is reduced for every £1 you earn over your personal allowance of £12,570. So, if you earn £13,500, then your 0% starting rate for savings would be £4,070.|
|Personal Savings Allowance:||£1000 / £500||Basic-rate (20%) taxpayers: can earn £1,000 in savings interest per year with no tax. Higher-rate (40%) taxpayers: can earn £500 in savings interest per year with no tax.|
|Dividend Allowance:||£2,000||You can receive income of up to £2,000 from shares and some equity-based collective investment funds without paying any tax. Dividends that arise within ISA and pension wrappers are exempt from dividend tax.|
|Capital Gains Tax Allowance:||£6,000||This is set to be halved to £3,000 from April 2024. It is the amount of profit you are allowed to make off an asset before paying tax.|
These allowances and reliefs are like valuable tools that can help you get the most out of your retirement strategy. Our team is here to guide you through these options and ensure you make the most of them to secure your financial future.
Optimising Your Guaranteed Pension Income
Any planning for retirement also needs to take into account the guaranteed pension income you will receive. You may find that deferring this income initially can be a strategic move to your advantage. Here are two examples:
- State Pension. This pension is guaranteed and can be claimed when you reach state retirement age, unless you choose to defer it. If you defer, the pension increases by 1% for every 9 weeks, resulting in a 5.8% increase over 52 weeks.
- Defined Benefit and Public Sector Pension Schemes. You usually have the flexibility to select the payment date, which means the option to defer might be available.
Begin Your Retirement Planning Early
The key to successful tax planning for retirement lies in early action. Financial strategies resemble marathons rather than sprints. Our financial advisors explore various methods to structure your financial resources effectively, in order to maximise retirement income.
This could entail optimising allowances for both spouses, strategically utilising your private pension to take advantage of personal allowances or leveraging your capital gains allowance when dealing with sales from your investment portfolio.
At Harpur Wealth, getting to know our clients deeply is a fundamental aspect of our approach. The better we understand your financial goals, the more precise and effective our strategies become in realising them.
Would you like to have a conversation with one of our local financial advisors regarding your retirement planning? Contact our friendly team at Harpur Wealth Management today to schedule a FREE consultation at 01234 924620.
This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions.
The value of your investment can go down as well as up and you may get back less than the amount invested.
‘The Financial Conduct Authority does not regulate taxation advice’