Various tax efficient schemes for retirement planning.

When you are planning on the best option to save for your retirement it can be difficult to find your way through the variety of options available to you. An independent financial advisor (IFA) is essential when considering regulated investments, but may not be able to tell you the tax consequences of the investment decisions before you.

We all know that a UK registered pension scheme is a tax efficient way of saving for your retirement. You receive full tax relief on up to £40,000 per year when you pay into your fund, generally as a high earner, and then pay tax when you receive the benefits, possibly at a lower rate than the relief received. The recent changes to allow flexible access to pension funds has increased the attractiveness of such schemes, but the government is currently considering whether to restrict the tax relief on savings.

Offshore funds, such as a QNUPS, do not receive the initial tax relief, but allow funds to be saved in excess of the annual contribution limit (currently £40,000 per year) and the lifetime allowance (£1.25 million, reducing to £1million from April 2016) without incurring the relevant tax penalties that a UK registered pension scheme would be charged. There are other benefits including inheritance tax protection, investments that can be made by the scheme and access to funds from the scheme.

There are also more straightforward ways of providing for your retirement out of your post tax income and gains:

  • You can currently invest up to £15,240 per year in an ISA (Individual Savings Account)- the interest or dividends of which are free of tax. Ordinary savings accounts and bonds can also be used, but are less efficient.
  • Capital gains tax (CGT) is generally charged at a lower rate than income tax and has a separate annual allowance from your income tax allowance; accessing these rates and allowances is preferable to the income tax regime, where possible. Investment in shares and property can provide an income whilst you own the investments and utilise the CGT allowances and tax rates when sold, so are ideal from this perspective.
  • Owning your own home can be a tax efficient way of saving for the future. House prices have generally risen, and there is little prospect of a reversal of this trend. Gains on your private residence are exempt from CGT, so the increase in equity whilst you own your own home is yours to access in future.

Tax Innovations can help you to create a tax efficient plan for your work and retirement by setting out the tax consequences of and possible improvements to any given structure so that you and your IFA can find the ideal investment plan for your needs.

If you would like more information on tax efficient planning for work and retirement or structuring your business relationships, please contact Tax Innovations on 01962 856 990 or customerservice@taxinnovations.com.

For an initial consultation please call us on 01962 856 990 or visit our contact page.