Retirement Tax Tips that get INCREASINGLY more valuable

[@leecraddock4037]

George, thanks this was really interesting. As I was watching a colleague sent me a message - he had just submitted his self assessment to HMRC - de-moaning the fact that he paid so much tax. I shared the video via whatsapp and now he has some strategies to mitigate his tax bill for the remainder of this financial year and next. Could you do me a huge favour and clarify a point i just cannot work out - I have looked at HMRC guidance and am still confused. In circumstances where someone earns, to make the math's easy, £10,000 in one tax year and has no employer pension what is the max they could contribute to a personal pension - someone said it was the full £10,000, but someone else said it was the net figure, so because you get tax relief at 20% it was only £8,000 - this areas seems to create a lot of confusion - perhaps a topic for a further video. Keep the videos coming they are really good and appreciated.

[@PrinciplesPersonalFinance]

Thanks for watching Lee. 🙌 So the crux of the question all revolves around how the scheme applies tax relief as different approaches to the contribution will need to be taken depending on that situation. In both cases, the maximum that can be claimed for an individual in tax relief is restricted to 100% of their relevant earnings. So £10k in the example above. However, if the scheme is a relief at source scheme, which typically includes most personal pensions and SIPPs, the 20% tax relief is applied to the contribution. So if they want to put £10k into the pension, they would put in £8k and get 20% relief. If the scheme applies net pay then it's taken off before tax is applied. Pension tax relief is tricky, no too ways about it. Took me about 2 years in finance before I understood it all!

[@leecraddock4037]

@@PrinciplesPersonalFinance George thank you so much for the detailed, but clear, response. Makes sense why in most instances with SIPPs and PP, on the example provided the max is £8k. Keep up the good work, you are making a difference to the neglected area of improving the country's financial literacy. BW Lee

[@adsheridan]

Thanks George, top summary and brilliantly explained!! Even I understood them...I was thinking of getting a tattoo of UFPLS, just so I don't ever forget.

[@PrinciplesPersonalFinance]

🤣 I know it's such pension jargon! Thanks for watching and your support. 🙌

[@davidfolts5893]

Thanks, Principles Personal Finance. Play the long game by considering the impact of taxes on your retirement plan. The value of tax reduction can not be overstated, as there is uncertainty about future tax rates.

[@PrinciplesPersonalFinance]

Thanks David, hope all is well with you and as ever, thanks for watching! 🙌

[@davidfolts5893]

@@PrinciplesPersonalFinance Thanks, George, right back at you.

[@Chipchap-xu6pk]

Some great advice for legitimate ways to reduce my tax burden for not a lot of effort. Thanks! To be honest, I'm not too keen on dying to take advantage of the last one.

[@PrinciplesPersonalFinance]

🤣🤣 surprisingly most of my clients don't seem so keen to die for tax reasons either! Thanks for watching

[@GG5150]

Good info. I'm either planning some of these or already doing them. Bonus has been going into the pension for quite a few years now.

[@PrinciplesPersonalFinance]

Nice, thanks for watching! 🙌

[@stephen6262]

Thanks George great video I would like to retire but it's scarey

[@PrinciplesPersonalFinance]

It's a big decision for sure! Wish you well for it and hope the content is useful. 👍

[@z7olliez7518]

George, do you find yourself utilising UFPLS often? I've been recommending this for a while now, especially to clients where both Husband & Wife for example have similar pension pot sizes. £16,760 x 2 tax free for the couple usually stands as sufficient income. What are your thoughts on this? I'm relatively newly CAS, any tips much appreciated.

[@PrinciplesPersonalFinance]

Hi, yes it can often work for clients. As you say, if the personal allowance is free it can work well. Always have to be careful on the MPAA trigger but not an issue for retired clients. Thanks for watching.

[@tonyh1460]

Fascinating video I’m going to have to watch this a few times I’ve a cunning idea, not sure if it’s entirely legitimate I’ve triggered MPAA (unintentionally but that’s another story) I’m still working and can now pay in £10k to my pension, as you’re aware I’m also earning over £130,000 pa So I had an idea If I pay in say £20k, this being £10k too much and so I’ll be hit with 40% tax on it, after my self assessment has been submitted, of course, but I’d have to pay that anyhow However I’d have managed to reduce the loss of the £12,570 personal allowance, by £10k I wonder if this would work ?😊

[@ianwhittaker3041]

Hi there, great video, thank you. Quick question regarding 'avoiding the 60% tax trap'. If someone was on a salary of £125k and had a no contribution defined benefit pension from their employer (ie only their employer paid in), would they still need to make a personal contribution of £25k, say in to a SIPP, to avoid the tax trap? Or, would their employers paying in to their DB pension (even if they weren't) achieve the same thing and 'avoid the 60% tax trap'? Thank you kindly

[@PrinciplesPersonalFinance]

Hi, thanks for watching. In that example, if the scheme in question was what is called a 'non-contributory defined benefit scheme' and it's just the employer paying in to stay active in the scheme and build up accrual (lucky person if so!) Then this is generally separate from the employee's income tax calculation and therefore they could absolutely get hit by the 60% tax trap on gross income. The DB accrual would use their annual allowance though and that's another calculation altogether! Hope that was useful, the above is information only based on a general example and is not to be seen as specific advice. As ever, I would always recommend getting advice specific to you before taking any action. 👍

[@ianwhittaker3041]

@@PrinciplesPersonalFinance hi, thank you so much for the feedback. It’s actually the situation my wife is in. So the short answer seems to be she should still use some of her unused £60k annual personal allowance to pay £25k in to her Vanguard Sipp to avoid the 60% tax trap? Thank you

[@simonnewman4240]

Great video George If you pay into a pension from a Ltd company (side hustle ) does HMRC still add 20%

[@PrinciplesPersonalFinance]

Hi Simon, thanks for watching, appreciated! 👏 The short answer is no, if a payment is made from a Ltd to a pension then it can be often deductible for corporation tax and tax efficient in that way, however, it wouldn't get uplifted by 20% as that is a mechanism for applying personal tax relief via relief at source scheme.

[@simonnewman4240]

@@PrinciplesPersonalFinance ahh I thought so but wanted to check :) Would be great if you could do a video on salary sacrifice vs normal government top ups. With a few examples with a average earner vs a high earner, with the 5 years differences in terms of wealth like this video

[@MattMcQueen1]

I'm confused about the tax-free element. Say, you have a pension fund of £100,000. On retirement, you can take £25,000 tax free. Any remaining money you take is taxable. However, say your fund remains invested, and instead of taking £25,000 initially, you take £10,000. You don't touch the remaining £90,000 and a year later it has grown to £100,000. How much can you now take tax free? £15,000 or £25,000?

[@SteveMoore1969]

I am unsure but assuming you're still working and just want to take the tax free cash and no income. to take £10k tax free you move £40k which leaves £30k in a "used-pot" and £60k to be used A year later £33333 "used pot" cannot take anymore tax free cash The £66666 you can take 25% so £16500. But equally the stock markets go DOWN as well as up so best get advice.

[@MattMcQueen1]

@@SteveMoore1969 it’s just a hypothetical - I’ll definitely get advice on the actual figures when the time comes (in under ten years).

[@terrybrown3486]

Yes that is correct but now there is the cap of 25% of the LTA so £268k max TFC

[@SteveMoore1969]

@@MattMcQueen1 you can get a free 1hr meeting (not advice) from pension wise if your over 50 and they lay out all the combinations. It's confusing at the time but they can point oit document to read etc

[@Banthah]

⁠​⁠@@MattMcQueen1 It doesn’t really work like that. You have crystallised and uncrystallised funds. At the start your full £100k is uncrystallised. In order to access it you have to crystallise the money, usually through drawdown, and usually at regular intervals throughout retirement. And you get 25% tax free on whatever you crystallise at that time. So in your example, if you crystallise £10k, your tax free amount is actually £2,500 and you pay tax on the £7,500. If the uncrystallised pot grows back up to £100k you can just repeat the process - remember your 25% tax free is on whatever you crystallise at that time. You can of course take the full £25k tax free by crystallising the lot at any time if you want. But that means crystallising your entire pot, which means you’ll be taxed on £75k, some at 40%, and that really isn’t tax efficient. It is generally accepted that leaving the funds uncrystallised, until you intend to spend it as income, is a better approach. As your remaining pot grows, so does the amount your tax free allowance grows…