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Retiring investors have £32,870 income tax-free per year

12 April 2021

As the new tax year gets underway, investors entering into retirement can take home at least £32,870 in tax-free income per year, new analysis from Quilter has revealed.

The wealth management firm provided a breakdown of the different investments retirees could utilise to maximise their tax-free income before allowances grow increasingly “less favourable” over time.

Retirees utilising their personal tax allowance are able to draw up to £12,570 in tax-free income from their pension savings in addition to any pension commencement lump sum taken.

Retirees can also take advantage of tax-free income in the form of the capital gains tax allowance while interest from cash deposits allows basic-rate taxpayers to receive £1,000 of tax free income and higher rate taxpayers up to £500.

In addition, Quilter said retirees can use offshore bond withdrawals of up to £5,000 to use the starting rate savings allowance, while ISAs allow unlimited funds to be drawn upon without being taxed.

Rachael Griffin, tax and financial planning expert, Quilter, said: “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. 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.”

Griffin added: “However, tax efficiency should not be the only driver when choosing what products to use. Each product offers different levels of flexibility and your particular financial circumstance will dictate what mix of investments is best.”

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