David Tarbotton, Independent Financial Consultant from Beverley based firm of chartered financial planners, cba financial services, demonstrates how planning and common sense will prevail over the Chancellor’s plans to generate an extra 750,000 Higher Rate Tax payers in the current tax year.
1. Take action. Don’t just sit back and allow the Government’s changes in legislation make a hole in the average household pocket of £thousands per year.
2. In April the higher rate tax threshold was reduced from £43,875 to £42,475. Paying into a pension is one tax-efficient way of reducing your 40% tax bill. An example shows:
Your earnings: £45,475
Personal allowance before you pay tax £7,475
You pay £3,000 into a pension
Therefore, you don’t pay the higher rate of tax even though you are earning £45,475 because the money going into the pension raises the threshold for higher rate tax.
3. Salary sacrifice is where the employee agrees to a reduced salary in exchange for a pension contribution that is equal to the saving and does not affect the net salary.
4. Employers can make savings in National Insurance via Salary Sacrifice using this route which might also be contributed towards a pension.
5. If you are already paying into a personal pension make sure you declare it on your Self Assessment tax-return or write to the HM Revenue & Customs. It might seem obvious but many people don’t and lose out as a result.
6. Keep your Child benefit: Paying into a pension might also save your Child Benefit. From April 2013 the Chancellor has stated that 40% tax payers will lose their child benefit, (a person with 3 children will lose £2,450 a year). Example:-
Earnings of £43,000 = child benefit nil.
Earnings £43,000 with a pension contribution of £2,450 + child benefit £2,450 = £2,450 per annum is going into your pension without costing anything.
7. High Earners: Those earning over £100,000 lose £1 of personal allowance for every £2 over £100,000. Currently £7,475 up from £6,475, which means an extra £2,590 in tax now and in the following tax year it will be £2,990. Salary sacrifice, again, may be an option to make significant tax savings and boost pension provision.
8. From Oct 2012, all employees will be automatically enrolled into the Government pension scheme – National Employment Savings Trust (NEST). Take action now to set up a scheme that is under your control.
9. Plan now. This is not tax avoidance it is simply common sense. Why give the tax man your earnings when you really don’t have to?
10. Seek advice from chartered financial planner who can explain your options. The media is only telling one side of the story. For a FREE financial health check and to find out exactly how you might be affected by the Government’s changes, please call our team of chartered financial planners at cba financial services limited on 01482 881919 or email admin@cba-partnership.com