Taxes in retirement

Understanding tax in retirement

If you’ve been saving all your working life to fund your retirement, you don’t want to lose out by paying more tax than you need to. There are also some tax benefits to be aware of that can help you make the most of your savings.

Handy tips that could help reduce your tax bill

There are a few different ways to help you reduce the amount of tax you pay.

• Transferring a personal allowance: This only applies to married couples and civil partners. If one of you is a non-taxpayer, you could be able to transfer up to 10% of your allowance from the non-taxpayer to the basic rate taxpayer. You can only do this if they are a basic rate taxpayer. In Scotland you can transfer an allowance if the person receiving the allowance is a starter rate, basic rate or intermediate rate taxpayer.

• Tailored Drawdown: Some pensions give you more freedom around how often you can take cash from your pot. Some let you take out cash as either phased payments of tax-free cash, taxable income or a mixture of the two.

  This could help you take a retirement income more tax-efficiently. You can even change how you take your money depending on your situation. Keep in mind that you might need to get specific financial advice if you’re thinking about this option.

• Top up your pension: Paying into your pension can lower the income tax you pay. Remember that your pension is invested and its value can go down as well as up and you could get less back than you paid in.
• Make a donation to charity: Making a donation to a charity using Gift Aid can help lower your total taxable income.
• Salary Exchange: If you're working, you can pay into a pension using Salary Exchange. It can lower the National Insurance you pay. This might not be right for you and not everyone can do this as it depends on whether your employer offers this option or not.
• Transfer assets to your spouse or civil partner: If your spouse or civil partner pays a lower rate of tax than you, you could transfer income-producing assets you own to them. This could be savings or shares. This would work if you're a higher rate taxpayer and they're a basic rate taxpayer or a non-taxpayer. Remember that each of us has our own dividend and personal savings allowances. You might have to pay extra tax if you or your partner go over them. You may need to seek specific financial advice if you are thinking about this option.

These tips should not be regarded as financial advice. The right approach for you will depend on your individual circumstances. If you would like financial advice you can speak to your existing adviser or arrange a consultation with one of our qualified financial advisers.

This information is based on our understanding of taxation legislation and regulations in April 2021. The legislation and regulations can change. Your personal circumstances and where you live in the UK also have an impact on tax treatment.