Pensions, Pensions, Pensions and the Tax Year End!

We recently had a new client come into our office as he had read somewhere about his Personal Tax Allowance being affected by his earnings. He was unclear whether he was impacted by this but wanted to talk to a professional to make sure. In this instance it turned out that, had he not come to speak to us, that he would have been adversely affected and as a result his Personal Tax Allowance would have been impacted.

What is the Personal Tax Allowance?

The Personal Tax Allowance is the amount of money you can earn each year before you have to pay Income Tax. For the 18/19 Tax Year the allowance is set at £11,850.00 and this will rise to £12,500.00 in the 19/20 Tax Year.

How can your earning impact the Personal Tax Allowance?

You are only entitled to the full Personal Tax Allowance if your income is below £100,000.00. Should your earnings exceed £100,000.00 then your Personal Tax Allowance will start to be reduced at a rate of £1 for every £2 that exceeds the £100,000.00 threshold.

So, what can be done to avoid this?

Well, that is exactly the question we were asked by our new client. Fortunately, there is simple solution to this problem – Pensions! Under current tax legislation, any personal contribution you make into a Personal Pension can be used to effectively extend out the basic rate tax band. Confused? That’s where come in. After speaking to us we were able to save this particular client £20,000.00 in Income Tax.

If you would like to speak to one of our experienced financial planners to see how we could help assist you in planning for the please contact the office on 01778 342291 to arrange a FREE initial consultation.