Which Is The Best Month To Retire For Tax Purposes In The UK?
By
HuutiMoney
If you are planning to retire and are wondering which is the best month to retire for tax purposes in the UK, you will find guidance in the following blog post as we discuss the details of when to retire and how to support yourself after retirement.
Which Is The Best Month To Retire For Tax Purposes In The UK?
The best month to retire for tax purposes in the UK is March. The reason for this is that the tax term runs from April of the previous year to April of the next year and it becomes financially feasible for retirees to retire at the end of the tax term so that they may be able to reduce their taxes.
Some of the reasons why March can prove to be the best month to retire for tax purposes in the UK include the following:
- Reduced Rate of Income Tax
- Full Personal Allowance
- ISA Allowance
- Capital Gains Tax Allowance
- Gifting Allowance
If you are a higher-rate taxpayer who pays their income tax at 40%, retiring at the end of a tax year benefits you by reducing your income tax rate according to your pension. In most cases, higher-rate taxpayers find their income tax rate reduced from 40% to 20% when they retire at the end of the tax term. On the other hand, if you retire in the middle of the tax year, you will still be paying a 40% rate on your pension even though you have no salary to draw.
Similarly, if you retire in the middle of the tax term, you may have exhausted some or all of your tax-free Personal Allowance (currently £12,570). On the other hand, retiring at the end of the tax term allows you to benefit from the full amount of your Personal Allowance.
Additionally, if you receive a lump sum amount in your pension and you retire at the end of a tax term, you will be able to claim 2 consecutive ISA allowances; one for the tax year that is ending and the other for the new tax year that is about to start. This means that you can have up to £40,000 invested in tax-free ISAs.
In the same way, if you are planning to cash in on your gainful investments at the time of your retirement, doing so at the end of the tax term will allow you to split the amount into two encashments. This means that you will be able to get a full CGT allowance for the current tax year and then another full CGT allowance for the next tax year.
And finally, if you intend to gift your children in lump sum amounts at the time of your retirement, doing so at the end of a tax year gives you two separate Gifting Allowances of £3,000 each; one after the other.
Do You Still Have To Pay Income Tax After You Retire?
Yes, you have to pay income tax after you retire. This income tax applies to your State Pension, workplace pension, earnings that you may have through rental income, dividends or shares or any welfare benefits that you may be claiming.
Your income tax rate in this case will be calculated in the same way as it would for your income. This means that the first £12,570 of your earnings will remain tax-free. After this, you will be taxed at the following rates:
- taxed at the basic rate of 20% if your income is between £12,571 to £50,270
- taxed at the higher rate of 40% if your income is between £50,271 to £150,000
- taxed at the additional rate of 45% if your income is more than £150,000
Can I Get Financial Support After I Retire?
Yes, you can get financial support from the UK Government in the form of welfare benefits if you are on a low income after your retirement.
For instance, Pension Credit is a state benefit for individuals above state pension age; which aims to help them with finances if they are struggling to make ends meet.
It comes in two parts; Guarantee Credit helps to top up weekly incomes to meet the minimum level and Savings Credit, which is extra money given to those whose income is higher than the state pension or who have some savings.
Additionally, you can also contact your local Citizens Advice centre for help and guidance.
Conclusion:
The above discussion singularly highlights the month of March as the best time to retire in the UK if one is to consider their taxes. The reason for this lies in the fact the tax term runs from April to April and the end of one term in March makes the retirement process and tax payments much more feasible for individuals.