Increase your retirement fund before the end of the tax year

Planning a tax-smart retirement

Some days you can’t imagine retiring. Other days, it can’t come soon enough. But there will come a day when you want to put the work behind you and live life differently. And a rewarding and comfortable retirement requires careful financial planning.

Planning for retirement these days is all about making sure you have plenty of options to live later the way you want to, not the way your retirement income forces you to.

That’s why it really pays to use your tax allowances and breaks each year to increase your retirement pool, as you get closer to that retirement party.

buy choices

Retirement takes a lot of planning. Are you going to move, or move to the countryside, or even leave the country altogether? “Saving enough in a tax-efficient way allows you to have many choices in life,” says Tony Clark, Senior Director of Proposals at St. James’s Place.

“You want to look at pensions and ISAs, of course, and other products with varying degrees of risk and tax efficiency.”

The first step is to carefully examine your current financial landscape and ensure that your money and assets are operating in the most tax-efficient manner possible.

Having confidence that you’ll be able to reach the retirement you envision is all about planning ahead to ensure you have the retirement income needed to get there.

ISA and pensions – the foundation of retirement planning

You will almost certainly have ISAs and pensions as one of your main sources of retirement income. Since both can help protect you from taxes on dividends, interest, and profits, using them correctly can help your money grow.

One of the best ways to increase your retirement capital before the end of the tax year is to use your full annual retirement allowance if you can. In 2022-23 it is still 100% of your salary or £40,000, whichever is lower. If you can, use your £20,000 tax-efficient ISA allowance too.

The ISA annual allowance is a “use-it-or-lose-it” allowance. But with pensions, you can carry over any unused allowances from the last three years.

Use other allowances to increase your pension

Tax breaks don’t stop at pensions and ISAs. If you make a profit selling assets outside of your ISA or pension, the annual Capital Gains Tax (CGT) exemption is still £12,300. However, it is reduced to £6,000 in 2023/24 and again to £3,000 in the 2024/25 tax year. You cannot defer this allowance, so it is another “use it or lose it” tax break. Use the entire allowance if you can.

If you’ve already used up your ISA allowance, there’s still Personal Savings Allowance (PSA), which can help you save tax. You can earn up to £1,000 in interest this tax year if you pay income tax at the basic rate. This drops to £500 a year for higher rate taxpayers, and additional rate taxpayers cannot claim at all.

Also consider the dividends you earn. Dividends earned on investments held in ISAs and pensions are tax exempt. You can also earn up to £2,000 before paying tax if dividends are outside of these packages. The dividend allowance then drops to £1,000 in tax year 2023/24 and then to £500 in tax year 2024/25.

Despite numerous subsequent announcements and cancellations, the dividend tax rates will remain unchanged between tax years 2022/23 and 2023/24.

At the time of writing, the dividend tax for base rate taxpayers in 2022/23 will remain at 8.75% and for higher rate taxpayers it will remain at 33.75%. For overtaxed taxpayers, it will remain at 39.35%.

Get financial advice for your retirement planning

The turmoil of the past two years has caused many people to rethink their long-term life plans. Especially when they retire and how they want to spend their retirement. The end of the tax year is a good time to think about making changes, according to Clark.

“There are many ways to achieve what you want, and an advisor will help you understand the most tax-efficient way to achieve it, such as the decisions you need to make, the allowances you can use and the best order in which to use them,” he says.

A financial adviser is there to keep abreast of changes and give you an idea of ​​tax breaks that can help you achieve the future you envision later in life.

The value of an investment with St. James’s Place will be directly linked to the performance of the selected funds and may go down as well as up. You may get back less than the amount invested.

Tax levels and bases, as well as tax relief, may change at any time and generally depend on individual circumstances.