Independent Financial Advisers
| What are Pensions |
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How are Personal Pensions taxed? A personal pension is a savings scheme designed to pay out when you finish work. If you want extra income in retirement a personal pension is one way to provide it. Broadly speaking, there are three types of personal pension:
Which type is suitable for you depends on how involved you want to be in your investment, your attitude to risk, and the amount you can afford to save. Whichever you choose, you will make regular and/or lump sum contributions into the scheme until you choose to retire. The money will be invested on your behalf, and your fund will grow in line with the performance of the investments. When you reach retirement you will be able to take up to 25% of your fund as a tax-free lump sum, and use the rest to provide an income for the rest of your life. How are Personal Pensions taxed? Income Tax-Benefits on personal pensions To encourage you to save for retirement the government boosts your contributions to a personal pension by your highest rate of income tax. So, for example, if you are a basic-rate taxpayer and you want to make a £1,000 contribution to a pension plan, it will only cost you £800 with the taxman topping up your contribution with the balance of £200. For a higher-rate taxpayer the relief is worth 40%, but only 20% is given when you make your contribution. You claim the difference between basic and higher-rate tax relief through your annual tax return. Although dividends from UK equities will no longer receive a 10% tax credit, investments sheltered within an approved Pension are still free from income tax. You do not pay tax on interest and rental receipts. Capital Gains Tax (CGT) Benefits All gains made on investments within an Personal Pension are free of CGT. Any losses cannot be allowed to offset gains made anywhere else.
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