Personal Finance | 22 March 2024

CASE STUDY: Helping a client save on tax while boosting her pension

An example of how we help clients with their financial planning.

case-study-pension

This case study is based on the various ways we support our clients and is intended to demonstrate how we help them. To ensure confidentiality, it does not represent a specific case. 

 

The situation

Mary, a lawyer, recently inherited some money and wanted to put it towards her retirement. She was keen to do so in the most tax-efficient way possible, particularly as her earnings meant she was an ‘additional rate’ taxpayer at the time, but had no idea where to start.

 

THE ISSUE

We liaised with Mary’s tax advisor and discovered she still hadn’t used a considerable amount of her pension annual allowance carried forward from the previous three tax years.

Coutts Financial Planner Chioma Patrick explains, “It was imperative that Mary’s allowances were used before the end of the tax year because otherwise she would lose some of them. That would mean a substantial potential saving – one which she was perfectly eligible for – lost for good.”

Our solution

As a result of our work with Mary, she added £70,000 to her pension but it only cost her £38,500 – so she saved £31,500. Her contribution benefitted from immediate basic tax relief of 20%, with a further 25% reclaimed through her tax return – bringing the total saving up to 45%.

Chioma says, “Using her inherited money to boost her pension brought lots of other financial planning benefits too. You don’t pay any tax on the money your pension makes whilst it’s held within that pension, and you can withdraw up to 25% of it tax free, up to £268,275, once you reach the minimum age – currently 55. Pensions can also be of benefit for inheritance tax planning.”

LEARN MORE ABOUT HOW COUTTS COULD SUPPORT YOUR FINANCIAL PLANNING

The value of investments can fall as well as rise and you may not get back the full amount you invest. Eligibility criteria, fees and charges apply. Tax reliefs referred to are those applied under current UK legislation, which may change. The availability and value of any tax relief will depend on your individual circumstances. This case study should not be taken as advice.

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