TAX AND YOUR INVESTMENTS Setting aside income in the form of savings is important for everyone, to provide for the unexpected or to build up a nest egg to enjoy in retirement. Pensions Making pension contributions
• taking a single or series of lump sums from a pension fund (known as an 'uncrystallised funds pension lump sum'). A taxpayer will typically take their tax-free lump sum from the fund at the same time as making an allocation into a flexi-access account. Where uncrystallised lump sums are withdrawn, 25% of each payment is tax free. The total amount which can be withdrawn as a tax free lump sum (under whichever option chosen) is generally limited to a total of £268,275, except in certain circumstances where previous protections apply. Other income withdrawn from a fund is taxable as income. The rules on pensions drawdown are complex and there are a number of options for taking a pension. Getting the right advice at the point of retirement is therefore crucial. Money Purchase Annual Allowance (MPAA) The government is aware of the possibility of people taking advantage of the flexibilities by 'recycling' their earned income into pensions and then immediately taking out amounts from their pension funds. The MPAA sets the maximum amount of tax-efficient contributions an individual can make at £10,000 per annum in certain scenarios.
complex but, put simply, they may give rise to a tax charge if annual contributions exceed £60,000. This threshold is reduced for high income individuals; generally where a taxpayer has adjusted income in excess of £260,000 the maximum annual contribution possible will be restricted by £1 for every £2 for the excess income. The minimum annual allowance available after this restriction is £10,000. Tax Tip Making pension contributions may limit the reduction of your personal allowance where you have income in excess of £100,000. We can assist you with planning your pension contributions. Pensions freedom Taxpayers have choice and flexibility when it comes to accessing their personal pension fund. Options include taking a tax free lump sum of 25% of fund value and purchasing an annuity with the remaining fund or opting for a more flexible drawdown. The flexible drawdown rules allow for total freedom to access a pension fund from the age of 55. Access to the fund may be achieved in one of two ways: • allocation of a pension fund (or part of a pension fund) into a 'flexi-access drawdown account' from which any amount can be taken over whatever period the person decides
Pensions are one of the most tax efficient forms of saving. Taxpayers benefit from tax relief on contributions at their marginal rate and investment income and capital gains will accrue within the scheme largely tax free. An individual is entitled to tax relief on personal contributions in any given tax year up to the higher of
100% of earned income or £3,600 (gross). Where employee contributions are made to
occupational pension schemes these are usually deducted from salary before an employee’s tax is calculated. Tax relief is therefore given automatically. Contributions to personal pension schemes are paid net of basic rate tax and the pension provider will then recover that basic rate tax from HMRC. Higher and additional rate relief, if appropriate, can be claimed from HMRC. Employer pension contributions are an exempt benefit for the employee and a deduction from profits may be available to the employer. There are controls which serve to limit the availability of tax relief on high levels of contribution. These are
Tax and Your Investments
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