‘It’s free money!’ Britons urged to act now to slash tax by thousands in retirement

Rishi Sunak says raising taxes was 'the last thing he wanted to do'

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Tax is a certainty, but it is loathed by millions of people – especially when income is limited in retirement. Fortunately, there are ways individuals may be able to legally reduce their tax, but this involves planning.

Express.co.uk spoke to Christine Ross, Head of Private Office – North at Handlesbanken Wealth Management, who discussed some steps Britons may wish to consider.

She said: “There is no magic answer, but I regard all savings as money for when you stop working.

“It doesn’t have to be in a pension, although this could help, it could be ISAs, investments, workplace arrangements, inheritance, property – all of it goes towards planning for retirement.

“Especially at the moment, one wants to create the highest return and markets have not been favourable – so investors may be disappointed.

“You’ve got to look at all of this together and create a return in two ways: investing and getting the tax planning right.”

Tax planning, Ms Ross stressed, is a financial bedrock as it helps Britons to take less risk.

If individuals can enhance their return by getting their tax planning right, it is less likely they will need to take ambitious risks with investments. 

She said: “Some of the actions are obvious, like the dividend allowance of £2,000 each year. I even made sure I used it for myself. 

“If someone is investing, they can put it all into the ISA, but if they are holding assets directly, it is worth looking at a portfolio that has a dividend income.

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“It’s free money. Of course, it depends on your own view on whether you want to invest, but to the extent people do – it can be useful.

“Most people appreciate now that for the long-term they will need to consider something beyond cash, or their money will not retain its buying power – even more so now.”

Ms Ross also drew attention to the idea of what is known as Bed and ISA, a common technique which exposes Britons to less market risk.

She explained: “Most people can invest £20,000 in their ISA, they may for example have a lump sum from their pension they want to invest directly.

“It’s important each year to transfer £20,000 each of that directly held investment into your ISA – it’s called Bed and ISA.

“Years ago, you could sell at close of market and buy at open to hope the price wouldn’t move so you could rebase your investment.

“That was ridded a few years ago, but you can sell and buy the same asset back in your ISA.

“You’re selling your investment and taking a gain within your Capital Gains Allowance – all tax-free. Then you get a nice tax-free environment for your cash.”

When it comes to retirement, many people will be looking forward to drawing money out of their pension, in many cases having saved for decades.

However, according to the expert, this may not be the best course of action for those who are carefully tax planning.

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She continued: “Unless your pension is really needed, why would you draw it out? 

“It brings that money into your estate for inheritance tax purposes, and some people will not even need to draw on their pension.

“My view really is to draw from a personal arrangement, some taxable income, and then draw some tax-free cash alongside it to spend.

“You can generally, for most people, stay within basic rate tax bands and not worry about tax implications.”

Finally, Ms Ross stressed it is important to make one’s finances have synergy and work together to help Britons achieve retirement goals. 

She concluded: “It is really worth keeping up with these basic good housekeeping actions. There is absolutely no rocket science here, it doesn’t have to be complicated in the slightest.

“Use up all of your allowances, make plans, and interest is starting to be more plentiful, so there is good news for cash savings there.”

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