Finance Choices
Make £38,000 on A-Day
New figures from Scottish Life show how a canny investor can add £38,000 to their net worth when investment rules change next year.
From April 6th next year ("A-Day") the rules surrounding self investment pension plans change, and if this is properly exploited savers can use their property to turn a loan of £34,000 into a pension pot of over £72,000, the pensions firm has calculated - a profit of £38,000.
This is because from A-Day onwards people can pay 100 per cent of their earnings into their pension plan and get tax relief. They can also unlock the tax-free cash from their pension fund without being required to buy an annuity, the pension firm points out.
Currently large numbers of UK residents hold much of their wealth in their home, but with some planning people can use the value of their home to increase their pension fund as well.
The system works like this:
A higher-rate tax payer releases £75,000 from the value of their property - for example through re-mortgaging - and pays this into their pension.
The government then provides basic-rate tax relief on the money paid into the pensions fund - taking the amount contributed up to £96,153.85.
An extra £17,307 can be claimed back via a tax self-assessment form - as the difference between higher rate tax relief and basic rate tax relief.
If the investor is over 50 they can then immediately take 25 per cent out of their pension tax-free (£24,038.46) and use the money to reduce their mortgage.
Overall this means their mortgage has increased by £33,654.54 and their pension fund has grown from nothing to £72,115.39.
"There's been a lot written recently about residential property being the new and exciting asset class to invest in your pension after A-Day," said Andy Taylor, Scottish Life's individual pensions marketing manager.
"In reality this is old news - individuals have been using their residential property to provide for their retirement for some time. But if you look at some of the changes being introduced to pension plans, and the fact that many people are already releasing equity from their homes to fund retirement, then I think we have a very interesting opportunity indeed."
From April 6th next year ("A-Day") the rules surrounding self investment pension plans change, and if this is properly exploited savers can use their property to turn a loan of £34,000 into a pension pot of over £72,000, the pensions firm has calculated - a profit of £38,000.
This is because from A-Day onwards people can pay 100 per cent of their earnings into their pension plan and get tax relief. They can also unlock the tax-free cash from their pension fund without being required to buy an annuity, the pension firm points out.
Currently large numbers of UK residents hold much of their wealth in their home, but with some planning people can use the value of their home to increase their pension fund as well.
The system works like this:
A higher-rate tax payer releases £75,000 from the value of their property - for example through re-mortgaging - and pays this into their pension.
The government then provides basic-rate tax relief on the money paid into the pensions fund - taking the amount contributed up to £96,153.85.
An extra £17,307 can be claimed back via a tax self-assessment form - as the difference between higher rate tax relief and basic rate tax relief.
If the investor is over 50 they can then immediately take 25 per cent out of their pension tax-free (£24,038.46) and use the money to reduce their mortgage.
Overall this means their mortgage has increased by £33,654.54 and their pension fund has grown from nothing to £72,115.39.
"There's been a lot written recently about residential property being the new and exciting asset class to invest in your pension after A-Day," said Andy Taylor, Scottish Life's individual pensions marketing manager.
"In reality this is old news - individuals have been using their residential property to provide for their retirement for some time. But if you look at some of the changes being introduced to pension plans, and the fact that many people are already releasing equity from their homes to fund retirement, then I think we have a very interesting opportunity indeed."
posted by Bruce Wayne at 10:30 AM
Make £38,000 on A-Day
0 Comments:
Post a Comment
<< Home