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If current finances permit, contributing more towards your pension before the end of the current tax year on 5 April 2009 will enable you to benefit from tax relief and from the tax-efficient treatment of pension funds. The total annual allowance for this tax year that you can utilise and receive tax relief upon is up to 100 per cent of your relevant earnings, capped at £235,000, with the limit set at £3,600 for low or non-earners paying into personal and stakeholder pensions.
There is a limit on the value of retirement benefits that you can draw from an approved pension scheme before tax penalties apply. That limit is called the Lifetime Allowance. The Lifetime Allowance is £1.65m in the 2008/09 tax year. At the time of payment, a recovery charge will be applied to the value of retirement benefits in excess of the Lifetime Allowance. The amount will depend on how the excess is paid. You may also be able to top up your tax-efficient pension contributions to a company pension scheme, or make Additional Voluntary Contributions (AVCs). AVCs could offer a cost-effective way to increase your pension fund if you have a company pension scheme. Following the changes that became effective from 6 April 2006, there are now even more ways to pay extra funds into your pension.
If you are a higher rate taxpayer, you may wish to consider saving tax by transferring money into a lower earning, or non-earning spouse’s or civil partner’s name. If appropriate to your situation, maximising personal tax allowances through non-taxpayers will enable them to claim tax back on bank and building society savings accounts, so that the tax liability on the savings is lower, or none. Fully utilising your annual Individual Savings Account (ISA) allowance, currently £7,200 (2008/09), will enable you to avoid tax by sheltering investments. It may be appropriate to consider moving savings from an ordinary deposit or savings account into an ISA. Friendly Society savings accounts or products from National Savings & Investments also offer tax-efficient savings options.
If you are single and have assets over £312,000 (2008/09), or are married or in a civil partnership with assets over £624,000 (2008/09), make sure that you don’t leave an inheritance tax (IHT) bill charged at 40 per cent on the assets of your estate over these allowances behind for your heirs to pay on your premature death. Write your life assurance policies in an appropriate trust, utilise your IHT allowances and make a Will. If you have made an outright lifetime gift, the actual IHT rates and allowances could be affected, therefore it is important to receive appropriate advice before taking action. It’s important to check that you are paying the correct amount of tax. Check your tax code to make sure you haven’t been issued with an incorrect tax code and reclaim any amounts that may be wrong. Also make sure you’re getting your correct personal allowance. |
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