Retirees could earn £32k in tax free income this year

Someone entering into retirement can now draw a minimum of £32,870 a year across a range of different investments before paying any income tax, according to new calculations from Quilter.

The wealth management expert suggested that retirees should be aware and make full use of the allowances available to them to potentially save a substantial amount of tax money over the long-term.

Quilter calculated that these tax allowances could come from utilising the personal tax allowance which will allow someone to draw up to £12,570 in tax free income from their pension savings, in addition to any Pension Commencement Lump Sum (PCLS) taken, as well as ISAs, which allow unlimited funds to be drawn upon without being taxed.

Realising gains of £12,300 or below provides tax free ‘income’ using the capital gains tax allowance, while investors could also get a further £2,000 distributions from equity based collectives in tax free income using the tax free dividend allowance.

Furthermore, interest from cash deposits allow someone to receive £1,000 of tax free income if they are a basic rate taxpayer, while higher rate taxpayers will be able to receive up to £500, and a retiree could make a withdrawal from an offshore bond – in addition to the 5% allowance – of up to £5,000 to use the starting rate savings allowance.

These calculations would give a total of £32,870 plus PCLS, ISA and capital withdrawn.

“While tax allowances are set to become increasingly less favourable over time, there are still ways to squeeze every last ounce out of those available to you,” commented Quilter tax and financial planning expert, Rachael Griffin.

“When it comes to retirement income, well planned use of allowances can allow you stretch your hard-earned savings that much further.

“If you have used a diverse set of investment products, you can now stand to tap into a minimum of £32,870 of your savings per year utilising the available tax allowances for 2021/22.

“Each of the different products enable you to take home a rather small amount of tax free ‘income’ per annum, but add them all together and you find yourself with a substantial amount.”

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