As I have said many times before, this time of the year is all about tax for us, and trying to use up allowances. Over the years I have found that the significance of this has increased. Whether it’s trying to make sure that no one in the household earns over £50,000 (if you qualify for full child benefit) or utilising your personal allowances, these can have a big impact on your overall financial position for the year.
Over the years, as a financial advisor, I have always been amazed how many people move their utilities around for very little savings, and yet knowing and understanding the implications of tax allowance can sometimes save hundreds of pounds.
For example, someone who earned £52,000 and therefore failed to qualify for full child benefit because their earnings are above £50,000 could make a pension contribution and bring their earnings below £50,000.
Another example I have seen a few times is where someone has a personal pension and is not due to claim their state pension for a few years, and rather than drawing their Personal Pension they are living off savings. These individuals were not utilising all their personal allowance. It could make sense to draw some early so that the personal allowance is utilised and they can enjoy more than the first 25% tax free.
But it’s not just about saving on the tax you are paying, you may also be entitled to tax relief. Anyone can make a pension contribution, even if you are not earning (when it is limited to £3600 gross), and enjoying tax relief at your highest rate on this contribution up to the age of 75.
But tax and allowances are complex, so you have to tread carefully because you may save it one way, but that could then make you subject to another tax. For example, in the case above you need to consider whether there is the possibility of a lifetime allowance tax charge. So why not pick up the phone today and utilise our free without obligation consultation.
● This is based on current UK taxation, law and practice all of which may be subject to change.