MoneyTalk February (Second Issue) 2005

by Arch Financial Planning Limited

INVESTMENTS AND AGE ALLOWANCE

(A tax saving opportunity for those over 65)

Many thousands of retired people in the UK are paying an effective top rate of tax of 33% on their income. In most cases, they are unaware of it. We are not talking about those who are sufficiently well off in retirement that they are higher rate taxpayers. Rather, these are ordinary folk who, as a result perhaps of having been in a good occupational pension scheme, will have a total income in excess of £19,500 in the 2005/06 tax year.

The reason for this odd, but punitive, effective rate of tax, is that they have lost part, or all, of something that they may not have realised they had - their age allowance. This is £7,090 in the 2005/06 tax year. The standard personal allowance in the 2005/06 tax year is only £4,895. This means that if you enjoy the full age allowance in the 2005/06 tax year you will save an additional £482.90 in tax. If you are aged 75 or over you could enjoy an even higher level of age allowance.

If your income in retirement is likely to be in excess of £19,500 in the next tax year you could find yourself caught in the ‘age allowance trap’ and paying a higher rate of tax because of this. The good news for such people is that there are a number of straightforward tax planning opportunities that could be used to improve your situation. The most important thing that you can do is review your current investments to see if they are the right kind to give you the most benefit in this situation.

We have updated the information we provide on this subject in our Fact Sheet: Investments and Age Allowance. If you would like to print-off a copy or read about this important subject further, please visit our website www.arch-fp.co.uk/investments_and_age_allowance.htm.

If you would like to receive advice on saving tax on your income in retirement and you have an Arch adviser then please contact him or her, otherwise email direct@arch-fp.co.uk or telephone 01483 204600.

These notes are intended as a guide only. You should not take action on your tax situation without talking through your personal situation with an independent financial adviser or your accountant. Any information given in our fact sheet relating to income tax legislation is based on our understanding of legislation and practice in force at the date of the fact sheet. Whilst we believe our interpretation of current law and practice to be correct in these areas, we cannot be responsible for the effects of any future legislation or any change in interpretation or treatment.

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Arch Financial Planning Limited

Head Office & Registered Office: Caswall House, 6 Wharf Street, Godalming, Surrey GU7 1NN
Tel: 01483 527278, Fax: 01483 527279

Administration Office: Arch House, Collins Court, 39 High Street, Cranleigh, Surrey GU6 8AS
Tel: 01483 204600, Fax: 01483 204611

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