tax liabilities

Are You Over 65 and Considering Your Tax Liabilities?

havenifa

havenifa


Posted on: 25th September 2023

Frozen tax thresholds. Rising Inflation. Some combinations result in an increasing number of retirees considering their tax liabilities. According to The Independent, in 2023/24, an estimated 8.5 million over-65s are paying Income Tax! That is a 10% increase from a year prior.

Typically, you will pay Income Tax if your income exceeds the Personal Allowance – set at £12,570 for 2023/24. As well as keeping this Personal Allowance in mind when managing your tax liability, you should also note the thresholds for paying higher or additional rates of Income Tax – £50,271 and £125,140, respectively for 2023/24.

What are the Reasons?

There are several documented reasons as to why over-65s are paying Income Tax. The cost of living crisis is the most prominent, with some workers forcing their retirement plans back. High inflation over the last 18 months has put a lot of pressure on household budgets, with a larger percentage of workers delaying their initial retirement planning Manchester and resulting in more over-65s likely to be working and paying Income Tax.

Inflation has also pushed incomes above the Personal Allowance. The state pension increased by 10.1% in April 2023 due to inflation, and some may receive income from an annuity that rises each year. Subsequently, many retirees may now find that their income has become liable for Income Tax.

Whilst retirement incomes may be rising, the Personal Allowance has remained the same for the last three tax years, and the government has frozen it until 2027/28.

Practical Steps

If you find that you are paying Income Tax in retirement, there may be steps you could take to reduce your liability. We suggest professional advice on any of these steps from independent financial advisers Cheshire that can assess your personal and financial circumstances before taking action.

If you are planning your retirement with your spouse or civil partner, you may be able to use the Marriage Allowance. If you and your partner don’t use the full Personal Allowance, you could transfer £1,260 of it. It could reduce your combined Income Tax bill by up to £252 in the 2023/24 tax year. The partner with the higher income must be a basic rate taxpayer to use the Marriage Allowance.

Depending on your circumstances, there are potential other steps to boost your retirement income without increasing your tax liabilities If you saved or invested through an ISA, withdrawals are not liable for Income Tax – meaning your ISA could supplement your income from other sources or, in 2023/24, you can receive up to £1,000 in dividends which you can receive from some investments without paying tax.

Spread, Manage or Plan

When accessing your pension, you can withdraw up to 25% of your savings without paying taxes. This tax-free cash can be a lump sum or spread across several withdrawals and can reduce your tax liability even if the total income exceeds the Personal Allowance.

If you access your pension flexibly, you can increase or decrease the income you receive depending on your needs, enabling you to adjust your withdrawals with Income Tax liability in mind. To effectively manage your tax liability, you may want to consider all of your assets. Making tax planning a part of your wider financial plan will help you get more out of your retirement.

To fully understand your options for reducing your tax liabilities, always consult with independent financial advisers Manchester before taking any steps. Contact the team at Haven IFA today for expert, tailored advice that helps you save for the future.

Posted in Tax