Investment Options Continued!


Investment Options Continued!

Following on from last week’s discussion on market conditions and the tax-efficient investment opportunity of ISAs, this week we should like to explain why pensions too are incredibly appealing, whether you are working or not. Here’s why.

  • Currently, for every £1 paid into a personal pension by an individual (under 75), the pension ‘instantly’ receives £1.25 (whether you pay tax or not and even if you are not working, up to £2,880). A contribution of £2,880 is automatically boosted to £3,600!
  • Higher and top rate taxpayers can then claim back even more via their tax return. £10,000 in a pension could therefore effectively cost a 40% rate taxpayer as little as £6,000 and a 45% rate taxpayer as little as £5,500. You can also benefit from other tax savings and things like Child Benefit and Grant funding for example, if you contribute to a pension as this ‘reduces’ your adjusted income.
  • For the higher earners who lose all or part of their Personal Tax Allowance (due to income falling between £100,000 and £125,000), a pension contribution is even more appealing as it also allows recovery of the Personal Allowance!
  • You are allowed to contribute the higher of £2,880 net (which receives tax relief making the overall contribution £3,600 gross) or 100% of your UK earnings (up to a maximum of £40,000 (unless income exceeds £200,000 when this allowance is tapered down)) to your pension each tax year.  So even if you are in a company pension scheme, you can have a personal pension too!
  • After making full use of the current year’s annual pension allowance, you can carry forward unused annual allowances from the three previous tax years, starting with the earliest.
  • Pension benefits can be taken flexibly at any time from age 55 (rising to 57).
  • 25% of your pension is there for you as a tax-free lump sum.  The rest can be withdrawn flexibly as part of your annual taxable income or used to purchase traditional pension annuities to provide you with a secure income for life.
  • If you die before touching your pension, up to 100% of the whole pot can pass down a generation with not a penny lost to Inheritance Tax!  Don’t touch all or any of it if you can avoid it! If death occurs before age 75, the recipient will have access to the pension immediately and with no Income Tax to pay on withdrawals.

Again, don’t forget that the tax year ends on 5 April but with Easter falling on the first weekend of April, applications will need to be submitted before the end of March to be sure of successful processing. For more information, please contact the office.