We seem to have started discussing pensions on the DevonDavid thread,I guess that was my fault! :-D
When one is approaching retirement,it is nessesary to ensure that you have a decent income that is also tax efficent...
Bear in mind that your personal allowance for the next tax year is £12500,all income above this level is taxable....but is it?
You also have a tax free allowance for 'Capital Gain',which I think is still £10800.
So,your total tax-free allowance is actually £23300....but that is still not the whole picture.
All income from ISA's is tax free,and the only limit with ISA's is the yearly amount that one can pay in,currently £20k pa.
So if,as is now allowed under the pension changes that came into effect about three years back,one takes the 25% tax free lump and places the first £20k into an income providing ISA,that extra income is tax free.It is possible to find such investments that will pay at around 9 to 10% pa.
Any remaining funds from this lump sum should be invested into a Capital Gain type investment so the eventual 'gain' (income)counts against your 'Capital Gain' allowance mentioned above.As these investments mature,they can be switched into ISA's to gain further tax free income.
When I retired,some four years back,I had already taken my RAF pension and paid tax on it via PAYE.I also took two other small pension's which were treated in the same way.
My state pension is treated for tax purposes as the first 'lump' of my personal allowance,leaving the remainder of my personal allowance to be split between the other three pensions,so I ended up being taxed on all three.Bad news.
I had also earned a third occupational pension,and I drew that under the new rules as a single lump.I had to pay income tax on it,but the tax year that I drew it gave me a total income just under the 40% upper band,and I was able to claim back some of the tax paid as the pension provider was obliged by HMRC to 'assume' that I would pay at the 40% rate on some of this income.
From this lump,I put £20k into an ISA that pays me a quarterly tax free income,the remainder was placed into an investment that gives me a 'Capital Gain'
I mentioned above that I had drawn two small pensions that I was paying PAYE on.
Over the last three years,I have been able to swap this very small income(one paid £28pm and the other £368pa)for lump sums.The lump is taxable,of course,but the first one now produces a tax free equivilent of £35pm,the second one lands next Feb so will form a part of next years ISA!
Bear in mind that all of the above also applies to your wife/partner,so surplus lump sums can be switched between partners to gain extra ISA's each year.
When one is approaching retirement,it is nessesary to ensure that you have a decent income that is also tax efficent...
Bear in mind that your personal allowance for the next tax year is £12500,all income above this level is taxable....but is it?
You also have a tax free allowance for 'Capital Gain',which I think is still £10800.
So,your total tax-free allowance is actually £23300....but that is still not the whole picture.
All income from ISA's is tax free,and the only limit with ISA's is the yearly amount that one can pay in,currently £20k pa.
So if,as is now allowed under the pension changes that came into effect about three years back,one takes the 25% tax free lump and places the first £20k into an income providing ISA,that extra income is tax free.It is possible to find such investments that will pay at around 9 to 10% pa.
Any remaining funds from this lump sum should be invested into a Capital Gain type investment so the eventual 'gain' (income)counts against your 'Capital Gain' allowance mentioned above.As these investments mature,they can be switched into ISA's to gain further tax free income.
When I retired,some four years back,I had already taken my RAF pension and paid tax on it via PAYE.I also took two other small pension's which were treated in the same way.
My state pension is treated for tax purposes as the first 'lump' of my personal allowance,leaving the remainder of my personal allowance to be split between the other three pensions,so I ended up being taxed on all three.Bad news.
I had also earned a third occupational pension,and I drew that under the new rules as a single lump.I had to pay income tax on it,but the tax year that I drew it gave me a total income just under the 40% upper band,and I was able to claim back some of the tax paid as the pension provider was obliged by HMRC to 'assume' that I would pay at the 40% rate on some of this income.
From this lump,I put £20k into an ISA that pays me a quarterly tax free income,the remainder was placed into an investment that gives me a 'Capital Gain'
I mentioned above that I had drawn two small pensions that I was paying PAYE on.
Over the last three years,I have been able to swap this very small income(one paid £28pm and the other £368pa)for lump sums.The lump is taxable,of course,but the first one now produces a tax free equivilent of £35pm,the second one lands next Feb so will form a part of next years ISA!
Bear in mind that all of the above also applies to your wife/partner,so surplus lump sums can be switched between partners to gain extra ISA's each year.
Have two cars, including my nice Jag. Down to one racehorse now, we did have shares in 10 at one time. Happy to say we do enjoy a good standard of living with no financial worries. If I want or my wife wants something I can just buy it. I have never had anything on credit. Always saved, bartered then bought.
