If you are a higher rate tax payer aged over 55 read on. If not unfortunately this is not for you.
This is not theory. It is exactly what one Hargreaves Lansdown client achieved just before the end of the tax year.
She was aged 57 and would have paid higher rate tax on about £20,000 of her earnings. She also had the maximum holding of premium bonds and a pension plan worth around £500,000.
She already understood that since the changes in 2015 the “pension” plan had become no more than a tax efficient “savings” plan from which she could take withdrawals as and when needed subject only to looking at the tax treatment.
So let’s look at what she did.
- Firstly, she withdrew £16,000 from her premium bonds.
- Secondly, she made a net pension contribution to her pension plan of £16,000.
- Thirdly, her pension provider claimed £4,000 of basic rate tax from HMRC and upped her pension contribution to £20,000.
- Next she claimed back £4,000 of higher rate tax relief from HMRC and put it back into her premium bonds.
So now she has £12,000 less in her Premium Bonds and £20,000 more in her pension plan – a profit of £8,000.
Yes there are tax consequences, but she can withdraw 25% of her fund tax free. If she has a period of low/no earnings between now and when she gets her State Pension there will be a chunk which can come out tax free each year (using her personal allowance) and, because she will not be a higher rate tax payer in retirement, the rest will be taxed at 20%.
The legislation dealing with all of this is very complex so most people will need help from a regulated pension specialist. Find one here.
If you are using one of the DIY platforms, such as Hargreaves Lansdown, and feel confident in making your own decisions having carried out the appropriate research, you may still need some additional help and guidance. This is where I come in.
I am not a regulated financial adviser and cannot therefore give personal advice, but a little guidance from someone with more than 30 years of pensions experience could be very worthwhile.
Wouldn’t you like to be £8,000 better off courtesy of HMRC?
Everyones’ figures will be different but if you are over 55, have savings, pay higher rate tax on part of your earnings, and will be a basic rate tax payer in retirement this is an opportunity not to be missed.
Phone or text me, Richard, on 07770 575122 and let’s have a chat about it. We can soon find out whether you need regulated financial advice or whether my “guidance” service is right for you.
Important note: This article is for information only and should not be treated as personal advice.
This document and our on going services are not personal advice. We'll give you all the help and guidance you need to make your investment and retirement decisions, but we can't advise you. If you're not sure whether you need regulated financial advice we can put you in touch with a suitably qualified and experienced regulated adviser. Because we are not regulated by the Financial Conduct Authority you will not have access to the Financial Ombudsman Service in respect of any complaints. If you use one of the "no advice" on line services to handle investment transactions they will be Regulated and you will have access to the Ombudsman and The Financial Compensation Scheme in respect of their services. The value of investments/pension plans can fall or rise depending on market performance. The Retirement Team and The Investment and Retirement Coach are trading names of Capture Success Ltd Reg No 01825075 Tel 07770575122