{"id":642,"date":"2025-02-13T17:16:29","date_gmt":"2025-02-13T17:16:29","guid":{"rendered":"https:\/\/www.wealth-generation.com\/insights\/?p=642"},"modified":"2025-02-13T17:18:02","modified_gmt":"2025-02-13T17:18:02","slug":"income-tax-planning-in-retirement","status":"publish","type":"post","link":"https:\/\/www.wealth-generation.com\/insights\/income-tax-planning-in-retirement\/","title":{"rendered":"Income Tax Planning in Retirement"},"content":{"rendered":"<ul>\n<li><span style=\"font-size: 14pt;\">In the tax year 2022-23 61% of retirees paid income tax according to HMRC figures.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">The state pension will become taxable for the first time from 2027, as total earnings from the full new state pension reach above the personal allowance for the first time.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">The number of pensioners paying income tax is set to rise by 15 percentage points to 76% of all retirees, driven by both rising state pension earnings and the frozen personal allowance of \u00a312,570.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Around 10 million pensioners \u2013 or three quarters of all retirees \u2013 will be paying income tax by 2032 according to a report from financial services consultancy LCP.<\/span><\/li>\n<\/ul>\n<p>Former pensions minister and partner at LCP, Sir Steve Webb, comments: \u201cThe proportion of pensioners dragged into the tax net has risen sharply in recent years as large cash increases in the pension have been set against a backdrop of frozen tax thresholds.\u00a0 Although future pension rises are likely to be smaller, if thresholds continue to be frozen, more and more pensioners will end up paying tax. We are also likely to see nearly two million more pensioners by the early 2030s compared with today.\u201d<\/p>\n<p>The state pension rose by 4.1% in 2024 after protection of the so-called \u2018triple lock\u2019 ensured another bumper rise. The triple lock guarantees the state pension will rise by inflation, average earnings or 2.5% depending on which is highest.<\/p>\n<p>The taxation of state pension is likely to occur inadvertently after the Government, first under Prime Minister Rishi Sunak but continued by Keir Starmer\u2019s Labour opted to use \u2018fiscal drag\u2019 to tip more people into higher income tax bands.\u00a0 Fiscal drag works by keeping income tax band thresholds fixed, while inflation and wages increase and send more workers into higher rates. This in turn leads the Government to taking more in tax.\u00a0 But now the length of time in which fiscal drag has been in place means the state pension itself is set to become liable to income taxes.<\/p>\n<p><span style=\"text-decoration: underline;\">Preparing for tax liabilities<\/span><\/p>\n<p>Although central tax policies such as income tax are unavoidable, there are a number of ways to mitigate its effects.\u00a0 Through the careful use of pensions allowances, ISAs and other allowances or retirement products, earners can ensure their tax bills are mitigated in retirement.\u00a0 If you are considering your own financial circumstances and potential tax liabilities, it is essential to consult with a financial adviser who can help make a plan.<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In the tax year 2022-23 61% of retirees paid income tax according to HMRC figures. The state pension will become taxable for the first time from 2027, as total earnings from the full new state pension reach above the personal allowance for the first time. The number of pensioners paying income tax is set to rise by 15 percentage points to 76% of all retirees, driven by both rising&hellip;<\/p>\n<p> <a class=\"more-link\" href=\"https:\/\/www.wealth-generation.com\/insights\/income-tax-planning-in-retirement\/\">Read more<\/a><\/p>\n","protected":false},"author":2,"featured_media":174,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":{"0":"post-642","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-financial-planning"},"_links":{"self":[{"href":"https:\/\/www.wealth-generation.com\/insights\/wp-json\/wp\/v2\/posts\/642","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.wealth-generation.com\/insights\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.wealth-generation.com\/insights\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.wealth-generation.com\/insights\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.wealth-generation.com\/insights\/wp-json\/wp\/v2\/comments?post=642"}],"version-history":[{"count":5,"href":"https:\/\/www.wealth-generation.com\/insights\/wp-json\/wp\/v2\/posts\/642\/revisions"}],"predecessor-version":[{"id":647,"href":"https:\/\/www.wealth-generation.com\/insights\/wp-json\/wp\/v2\/posts\/642\/revisions\/647"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.wealth-generation.com\/insights\/wp-json\/wp\/v2\/media\/174"}],"wp:attachment":[{"href":"https:\/\/www.wealth-generation.com\/insights\/wp-json\/wp\/v2\/media?parent=642"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.wealth-generation.com\/insights\/wp-json\/wp\/v2\/categories?post=642"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.wealth-generation.com\/insights\/wp-json\/wp\/v2\/tags?post=642"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}