‘Large swathes’ of Britain at risk of Rishi Sunak’s stealth tax raid – how to beat it

Pension: Expert gives advice on preparing for retirement

We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info

In March 2021, the Chancellor of the Exchequer, Rishi Sunak announced that the pensions lifetime allowance would remain frozen at £1,073,100 until at least April 2026. This could mean more people face paying tax on their retirement savings.

AJ Bell’s head of retirement policy, Tom Selby, explained the impact the freeze could have on Britons saving for retirement.

He said: “While freezing the pension lifetime allowance at just over £1million might sound like a relatively minor move aimed at the wealthiest in society, large swathes of middle Britain are now at risk of being dragged into its net.

“High-earning doctors and consultants in the NHS who benefit from generous defined benefit pensions, for example, will be among those hit by this measure.

“Furthermore, the longer it is kept at the current level, the more it will cap the retirement saving aspirations of future generations.

“The impact will depend in part on what happens to inflation over the next four years. Freezing the allowance while inflation rises sharply actually equates to cutting it in real terms.”

With tax rises potentially coming in April, Mr Selby warned savers and investors to “pull out all the stops” to keep as much of their money “sheltered from the coming tax storm” as they can.

Mr Selby listed a couple of the key tools Britons could use to keep their tax bill down.

Pension contributions

He said: “If you’re a higher rate taxpayer, or become one soon, a pension contribution is a good way to reduce your tax bill.

Millions to retire on just £1,000 – bleak outlook as State Pension triple lock is axed [WARNING]
‘I cannot afford the price!’ Over 60s vent fury at proposal to scrap free prescriptions [REACTION]
Woman explains simple way she earns extra £600 a month – and ‘anyone can do it’ [FEATURE]

“For each £800 you put in, the Government adds £200 to your pension, even if you’re a basic rate or non-taxpayer, up to certain limits.

“Higher rate taxpayers can then also knock a further £200 of their tax bill, which they would normally pay when they complete their tax return.

“If you contribute to a workplace pension, chances are your employer will get the extra tax relief applied automatically, you won’t have to claim it.”

The net effect would be someone adding £1,000 to their pension, but at a cost of just £600 for higher rate taxpayers.

“Your investment growth and income are then tax-free inside the pension, and you can take 25 percent of your total pot as a tax-free lump sum at retirement.

“The remaining pension income you draw is taxable, but in retirement, you’re likely to be paying a lower overall tax rate than when you’re working.

“The Chancellor did also freeze the pensions Lifetime Allowance at £1,073,100, so if you’re lucky enough to be bumping up against this, you need to think twice before adding more money to your pension.”

Lifetime ISA

A relatively new addition to the ISA family is the Lifetime ISA or LISA, which provides investors with a Government top up of 25 percent on annual contributions up to £4,000 a year.

Mr Selby explained: “Unlike a standard ISA, you have to be under 40 to set a Lifetime ISA up, but if you do so you can continue contributing until your 50th birthday.

“The Lifetime ISA is also more restrictive than a standard ISA, as you can only draw on it in order to buy your first property, or once you reach the age of 60.

“If you withdraw your funds at any other time they will be subject to a withdrawal charge of 25 percent, which effectively reclaims the Government top up and a little bit more by way of a penalty.

“The Lifetime ISA can be an extremely helpful and tax efficient way to save for a house however, or indeed as an alternative or supplement to a private pension for basic rate taxpayers.”

Source: Read Full Article