Case study 06.01.2009
Have you thought how you will maintain or even enhance your lifestyle in later life?
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Personal Wealth Management
Accumulation of wealth in a tax-efficient manner
There are many tax advantages to saving for retirement through a Rowanmoor Pensions Small Self-Administered Scheme (SSAS) or Family Pension Trust. The following case study demonstrates the value of tax relief on contributions.
Bob is a higher rate tax-payer; he has no pension provision and wants to start saving £500 a month. He could put the money into a high street bank or building society account, but he would have to pay tax on his earned income at the higher rate and will incur a tax charge on his savings at his highest rate. Alternatively, he could invest the money in a Rowanmoor Pensions SSAS or a Family Pension Trust. By doing this, he will be entitled to receive tax relief at his highest rate and his savings and investments (other than dividend income) will grow free from UK capital gains tax and income tax.
Bob works out that, taking into account tax relief at his highest rate, he could make an investment of £833.33 per month to his pension scheme. After tax relief, the net cost to him is only £500 per month.
| Rowanmoor Pensions SSAS or Family Pension Trust | Bank/Building Society | |
|---|---|---|
| Total investment | £833.33 | £500 |
| Tax relief at 40% | £333.33 | Nil |
| Net investment | £500 | £500 |
By investing in a pension Bob increases his total savings by £4000 a year. This case study does not take into account the possible returns from his investment, nor does it reflect the additional tax he will have to pay on the interest earned in a bank or building society account.
Notes
This information is based on Rowanmoor Pensions' understanding of current pension law and taxation and is correct at the time of publishing.
Calculations are based on tax and national insurance data for the 2008/09 tax year.