In the UK, 6.87 million state pensioners paid over £24bn (£3,522 per person) to HMRC in tax in the year 2015-16. The figure is far larger than many would have expected, so how can pensioners cut their tax bill?
What are pensioners taxed on?
Firstly, it is important to consider what pensioners actually pay tax on. Whilst three-quarters of taxpaying pensioners are retired, that still leaves a quarter in paid work – around 1.52 million in employment and a further 498,000 self-employed.
Pensioners also get taxed on their pensions, and of the taxpaying pensioners, 6.78 million received a pension that year. Tax can also be placed on income from savings interest, dividends and property and in 2015-16, 6.63 million pensioners were affected by that.
How can you cut your tax bill?
There are a few different ways for you to potentially cut your tax bill if you’re a pensioner. To start, ensure all information relating to tax is correct – this means check your tax code, and your National Insurance – most people of state pension age should not have to pay National Insurance.
The next couple of tips relate to your income. Consider delaying claiming your state pension if you plan to keep working, because the income from your pension could be pushing you into a higher tax bracket. In regard to income from investments use dividends to generate income – you do not have to pay tax on the first £2,000 from dividend income.
A final thing to consider is your savings account and ISAs. ISAs in particular are useful as your money placed in an ISA remains tax-free, and interest earned from an ISA does not count towards your personal allowance, so it won’t drive up your tax bill.
The most important thing is that you have a plan in place based on careful thought and that meets your needs and requirements. For expert financial advice, talk to our team.
We’re experienced financial advisers with years of expertise under our belt – so you can be sure you’re in safe hands. Please call on 01926 492406 or email us at email@example.com to make an appointment.