Drawing benefits Many people aged 55 and over (57 from 6 April 2028) can draw their pension savings flexibly. Withdrawals above the tax-free amount are liable to income tax at your marginal rate. You should take advice before accessing pension savings as there are several options, each with their own pros and cons, and they will generally have a long-term effect on your financial position. If you are already drawing your benefits from a pension fund that is not guaranteed and are considering reducing your withdrawals, be aware that this should also reduce the amount of income tax due. Useful link: www.gov.uk/plan-retirement-income – information about pensions and pensioner benefits. TAX-EFFICIENT INVESTMENTS Some investments have income tax and CGT advantages. Individual savings accounts Tax-efficient savings and investments like individual savings accounts (ISAs) can give your returns a further boost. You can invest in one cash, stocks and shares and innovative finance ISA in each tax year. If you are aged 18 to 39, you can also invest up to £4,000 in a lifetime ISA (LISA). If you already have a LISA, you can contribute until you reach age 50. However, the maximum ISA investment limit of £20,000 for 2023/24 (and 2024/25) applies across all four types of ISA. This sum may be invested in one type of account or split KEY GUIDE | Month 20XX | Folio Title Folio Title Folio Title Folio Title 7 SPECIAL REPORT | December 2023 | Year End Financial Planning between two or more. ISAs are free of UK tax on investment income and capital gains, and there is a wide choice of funds and providers. The government adds a 25% bonus to investments of up to £4,000 a year in a LISA. You can use these savings to help buy a first home or keep the funds to use from age 60. Eligible savers can use a LISA either instead of or alongside more traditional ways of saving for retirement. The decisions can be complex so taking advice is essential. You will incur a LISA government withdrawal charge (currently 25%) if you transfer the funds to a different ISA or withdraw the funds before age 60 and you may therefore get back less than you paid into a LISA. Until 5 April 2024, 16- and 17-year-olds can open a cash ISA. However, the rules effectively prevent you from opening an ISA for them. Parents and others can contribute to a Junior ISA for children up to 18 who do not have a child trust fund. The contribution limit is a generous £9,000 in 2023/24 (and 2024/25) and funds are generally locked in until the child is 18. Enterprise investment schemes and venture capital trusts These are schemes that offer significant income tax and CGT benefits. However, they are high-risk investments and may be difficult to sell so you should seek specialist advice. ● Enterprise investment schemes (EISs) give income tax relief at 30% for investing in new shares in relatively small qualifying trading companies that are not listed on any main stock exchange. ● The seed enterprise investment scheme (SEIS) is similar but gives income tax relief at 50% and is aimed at start-up companies. ● Gains from both EISs and SEISs escape CGT after three years. CGT reinvestment relief is also available. Credit: AlisaRut\shutterstock.com Planning point If your pension fund is over or close to the £1,073,100 lifetime allowance, you might consider speaking to a financial adviser to ascertain the implications for you of the allowance’s abolition from 6 April 2024.
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