Here are some of the areas where planning between now and 5 April 2012 could provide tax advantageous solutions to help you build a decent retirement income:
• If you are subject to 50% income tax – you could pay personal contributions within 100% of the relevant earnings threshold, to reduce your taxable income below the 50% tax threshold.
• If you have adjusted relevant income over £114,950 per annum – you could pay personal contributions to registered pension schemes to reduce your taxable income to below £100,000. This would enable your full personal allowance to be regained and may provide an effective marginal rate tax relief of 60% on contributions paid between £114,950 and £100,000.
• Carry forward of unused annual allowance from 2008/09 – the allowance will be lost if not used. To utilise this you must ensure the full £50,000 annual allowance for 2011/12 tax year is used first, ensuring the pension input period for this contribution ends no later than 5 April 2012.
• Use Employer contributions to reduce taxable profits in trading periods ending before 5 April 2012 - can be used for carry forward of unused annual allowances, for the current annual allowance and that for 2012/13 tax year.
• Registering for fixed protection – If applicable you must complete this no later than 5 April 2012. 2011/12 is the last tax year in which money purchase contributions can be paid if fixed protection is to apply. Maximise this year's annual allowance plus carry forward of unused relief for pension input periods ending in 2008/09 to 2010/11 tax years. We can also plan using your input period which will allow funding of 2012/13 annual allowance this tax year maximising input.
• Recycling of unused income withdrawals as allowable contributions - minimum £3,600 if you are aged under 75, but could be higher if you have relevant earnings.
• Gifting income using 'normal expenditure' from drawdown funds – this helps reduce the potential 55% tax charge on death from drawdown fund, whilst ensuring future growth is with the beneficiary and not part of taxable drawdown fund. Funding third party contributions to pension arrangements of children or grandchildren is also an option.
• Early crystallisation – if you are aged over 55 crystallising benefits this tax year while lifetime allowance is £1.8 million will create higher retained lifetime allowance for future use.
Chartered Financial Planner
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Census Financial Planning is an independent financial planning practice providing a professional and comprehensive financial planning service, located on the Lisburn Road in Belfast, Northern Ireland.