Enable’s IFA’s know each year taxes will be due but the rates can change rapidly. There are several tax-free allowances that need to be taken into account for any financial planning. It is the time of year to start making sure you have planned to take full advantage of your tax-free allowances and any exemptions that might be available to you before the end of the tax year in April.
Using up any allowances you are entitled to is the first step in reducing the amount of tax you are liable to pay in any year. In some cases using up allowances such as pension contributions can reduce your gross wage enough to affect tax brackets and reduce your total income assessed for tax. Reducing your gross earnings figure can also help if your earnings are not far above the 20% threshold or the earnings threshold for the Children’s Allowance.
By using an allowance, such as your pension allowance, you can reduce your gross figure to below the 20% cut off point, avoiding having to pay 40% on anything above it, while providing for your financial future at the same time. Enable’s IFAs know that some pension payments can get very complex yet the basic thing to remember is that most people don’t have to pay tax on the money they pay into their pension via their employer’s PAYE system. Instead, the tax relief is used to top up your pension contributions.
If you aren’t a taxpayer, then you’ll be given an extra £20 for every £80 you pay into a pension up until you’ve contributed £2,880. This means the Government tops up your pension to £3,600. But there are some limits on the amount of tax-free contributions you can make both in a year and over your lifetime. If you would like to talk through your tax-free allowances Enable’s experienced IFA’s in Bishops Stortford are here to help.