The month of February has always been known in the financial planning industry as “retirement annuity season”, mainly because it is the last chance tax payers have to easily and conveniently save tax by contributing to a retirement annuity policy. Even those who have contributed to an RA throughout the year, February is a chance to top up those contributions with a once off payment.
Tax relief is generous. Up to 40% of contributions paid into an RA can be saved in tax. Contributions are limited to 15% of taxable income. This will increase to 27.5% from 2015. Taxable income includes any non-pensionable income. It also includes adhoc income such as annual bonuses and investment income.
Retirement annuities are excellent investments in themselves. The funds pay no tax whatsoever on their investment income and no dividends tax. Neither do they pay Capital Gains Tax on realised profits within the funds. These considerable tax advantages are of course passed onto investors through higher investment returns. Investors in RAs gain a further advantage in that there is no estate duty on RA proceeds in the event of death. Furthermore, on death, benefits can be made payable to nominated beneficiaries immediately without having to go through the estate process.
There is no longer an age restriction for contributing to an RA. It used to be 70 but this has now been removed.
Please contact your Maximus Wealth adviser for an assessment of how much tax you can save for this tax year. Needless to say, it is important that this is finalised before the end of February.