Over the course of the festive season we’ll be bringing you an advent calendar’s worth of tax and financial tips. Some of them might even be a little Christmassy! Today we look at planning for retirement with…
This is probably one to think about once Christmas is out the way, but this will form a reminder to get something booked into you diary.
Pension contributions are a great way of saving for retirement but they can also be used to reduce tax bills. For company owners, the company can make contributions into the owner’s pension scheme and deduct those contributions from profits to reduce the corporation tax liability.
Individuals automatically receive basic rate tax relief on pension contributions they make. This is achieved by the government making a contribution into the scheme as well. So for every £80 paid in by the individual, the government pays in £20.
Higher and additional rate taxpayers can claim extra tax relief on their tax returns. This will either reduce their tax bills or generate a refund.
Beware 1: Those on low salaries need to ensure their personal contribution plus the government contribution does not exceed their income from employment and/or self employment.
Beware 2: There are limits to how much can be paid into pension schemes without incurring tax charges, and these limits begin to reduce when earnings exceed £150,000.
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