Retirement – for many it may seem like a long way off, while for others it is creeping up on them and will be here before they know it.
Some may be choosing to retire early with future plans already in place, and some will decide to work those extra few years to feather their retirement nest egg.
But whatever the circumstances, how or when is the best time to plan for retirement?
As with most things, there are benefits to starting as early as possible.
This could be through a personal or work pension, paying into a tax free or high interest savings account, or simply putting a little aside for a ‘rainy day’.
However you are planning, preparing or saving – and whatever your age – there are some legal requirements to be aware of, say leading local law firm Buckles Solicitors, to ensure as little of your hard-earned cash as possible ends up in the hands of the tax man.
Head of the firm’s private client department, which deals with wealth preservation and tax planning, Stephen Duffy said: “Lower investment returns, inadequate pension provision and increasing life expectancy are resulting in many people reaching retirement age with far less capital and income than they may want or need for their lifetime.
“The majority of people thinking ahead to retirement will have spent their working lives paying tax, and perhaps even paying tax on their savings.
“However, there are some important things to bear in mind when other issues – which on the face of it look like simple cash boosters – come into play.
“Whether you have earned your wealth, inherited it or made shrewd investments, you will want to ensure that as little of it as possible ends up in the hands of the tax man.”
Information on a range of wealth preservation and tax planning subjects available here. Meanwhile, issues to consider:
Inheritance Tax (IHT)
Inheritance tax is payable on death if the estate of the person who has died is worth more than £325,000 (for a person who has never been married or in a civil partnership). The rate of Inheritance Tax is 40 per on any amount in excess of this amount.
Capital Gains Tax (CGT)
Capital Gains Tax is payable on the disposal of a taxable asset which has increased in value since it was acquired, for example: shares, a property, a piece of land or even a valuable antique or painting!
A ‘disposal’ could mean a sale or a gift while ‘acquired’ could mean purchased, or inherited, or received by way of gift. A taxable asset may be a shareholding, or a property that is not your main residence, but is used as a holiday home or a rental property.
Equity release schemes
Available to people aged over 55, equity release (ER) allows you to extract cash out of your property by effectively taking out a loan secured on your home – and it is paid back when your property is sold. There are two types of equity release: a home reversion scheme or a lifetime mortgage. With both, homeowners:
- Have the right to remain in their home for life
- Will receive a cash lump sum or an income for life, or a combination of these, from the ER company
- Need pay no repayments to the ER company until their home is sold (in the event of death or moving into long-term care)
- Be assured that the amount owned to the ER company will never exceed the value of the home (which is commonly called the ‘No Negative Equity Guarantee’)
