Retiree alert – take £50,000 retirement savings THIS YEAR tax-free ‘Can be done’ | Personal finance | Finance

It would really help them cope with the cost of living pressure and keep more of their hard-earned money to themselves. However, this requires careful planning.

To earn over £50,000 a year tax-free in retirement, you need to maximize all of your various tax allowances.

Although they do not apply to everyone, millions of people should be able to take advantage of at least one allowance.

These tax breaks are complicated and easy to overlook. Even taking just one or two that you hadn’t considered could lower your tax bill.

Shaun Moore, tax and financial planning expert at wealth manager Quilter, said someone retiring with a mix of savings and investments needs to understand all of their tax planning options. “You could save a substantial amount of tax money,” he says.

Even if all of this doesn’t apply to you, mopping up just one or two of the following could make a big difference.

Personal allowance. Anyone can earn up to £12,570 a year before basic rate income tax kicks in at 20%. The new state pension pays well below that at £9,267.80, even if you get the maximum amount, which is why nobody pays tax on it.

Starting rate for savings. As well as the personal allowance, savers can also withdraw up to £5,000 of interest from a deposit account without having to pay tax on it, but it depends on where they stand, Moore said.

You are not eligible for this tax relief if your total income from other sources, including your state pension, is £17,570 or more.

Personal savings allowance. Under the PSA, those who pay tax at the basic rate or no tax at all can receive £1,000 a year in tax-free savings interest. If used, this brings the total non-taxable income so far to £18,570.

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Dividend allocation. Investors who hold stocks and shares outside of a tax-exempt Isa can receive dividend income of up to £2,000 a year, before dividend tax comes into effect. This would bring the annual non-taxable total to £20,570.

Isa savings. All the income you get from the Isa tax-free is entirely free of income tax, so those with large sums hidden away can get unlimited income without paying any to HMRC.

According to Moore’s figure, some assume the pensioner has £75,000 in Isa savings and takes 4% of income each year, or £3,000. Now they earn £23,570 a year, still without having to pay HMRC.

Two other options could generate even larger tax-exempt sums, even if they will not be open to everyone, every year.

Capital gains tax. Britons can take £12,300 of capital gains each year, without having to pay CGT. This is handy for bank earnings on shares held externally on Isa, or other assets, including Bitcoin. This brings the total potential non-taxable income to £35,870.

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Non-taxable lump-sum pension. Savers can withdraw 25% of their retirement savings tax-free, officially known as the retirement lump sum. This is an extremely valuable benefit.

Moore’s example assumes that someone with a pension of £62,797 takes the full tax-free lump sum of £15,699 in the tax year in question. Now they earn £51,569 excluding tax. Obviously, it’s not something they can do every year.

There’s a final option for those who want to save even more tax, Moore says. “You can invest in an onshore bond, which allows you to make tax-free withdrawals of 5% per annum, as this is treated as a return of your capital.”

Pensioners with large sums of money could take much more than £50,000. However, don’t just buy investments because they’re tax-efficient, make sure they’re good value and right for you.

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