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bigduckontax
bigduckontax, Accountant
Category: Tax
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I live in the UK, Im retired, and have a pension income of

Customer Question

I live in the UK, I'm retired, and have a pension income of approx £120,000, which means I lose all my personal tax allowance and I'm therefore effectively paying tax at 60% on the top slice of £20,000. I assumed this government would remove this anomaly but they aren't showing any inclination to do so. I'm therefore starting to consider whether there is any way I could reduce my taxable income by say £20,000 and possibly deferring it or converting it into capital, which I might be able to collect at a later date. I have heard about EIS but they might be too risky and I wonder whether there are any other options? Many thanks for your help, Michael Doherty
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.

Well, the traditional way for an individual to reduce tax is to make contributions to a pension fund, but in your case that is a non starter! So we are looking at tax free investments. Obvious candidates are Premium Savings Bonds and National Savings Certificates, both of which are tax free. Then there are ISAs, either cash or shares. These do not mop up much cash though through relatively low limits imposed on investment.

So now we have to fall back on EIS or SEIS schemes, all of which, as you surmise, can be risky. Have a look at:

http://www.whatinvestment.co.uk/investment-decisions/isas-and-tax-planning/2381293/eis-and-seis-tax-breaks-explained.thtml

which gives a general run down of these investments. They are the best money savers, but as you say can be risky.

If you have any business income at all outside your pensions you could still benefit from mopping up 100% of the the income [max 40K] and if it's a SIPP investment you can go back 3 tears to mop up income in a pension investment on a pay and vest basis.

I am sorry to be so negative in my reply, but you really have so few options available, Always bear in mind Benjamin Franklin's dictum that in life there are but two certainties, death and taxes.
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Expert:  bigduckontax replied 3 years ago.

On overnight reflection, a deferral might assist in reducing your annual income, but your pension provider would have to agree to this procedure. Were this income through an annuity then I regret that such an approach won't work. There is also the danger that nay deferred sum would be lot altogether from your estate on death.

 

You have to remember that you have to actually receive income to be taxed thereon. When I first studied tax the Investment Income Surcharge was imposed when Dennis Healey was Chancellor to the Wilson Government which taxed unearned income at 95%, ouch. It wasn't so long ago that the basic rate of tax was 35% and husband's and wife's incomes combined!

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Expert:  bigduckontax replied 3 years ago.
Thank you for your support.

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