Jonathan Watts-Lay, Director, WEALTH at work, discusses with The Telegraph how individuals can make the most of tax breaks when taking income in retirement.
He comments; “People spend too much time worrying about the size of their pension and too little about minimising tax they pay in retirement. If you can avoid a 20% tax-slice, then you have just boosted that chunk of money by 25%.”
The first 25% you take from your defined contribution pension will normally be tax-free and the remainder will be added to your income and taxed at your marginal rate. With careful planning it is possible for individuals to utilise their available tax allowances in a structured way to maximise returns and reduce, or even eliminate, potential tax charges. For example, where possible it may be beneficial to draw money from taxable savings rather than from the tax efficient wrapper of a pension.
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