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Caught in the tax trap?

Caught in the tax trap?

You got a pay raise and your salary is now on the threshold of the 40% tax rate. How do you avoid the potential tax trap?

Luckily, it may be possible to avoid it after all because any contributions you make into your pension are deducted from your salary before you are taxed. In other words, your taxable salary is reduced. 

Example 1

Sally earns a gross salary of £50 000. On this salary, she pay basic rate tax of £6 900 and higher rate tax of £3 650.  If Sally was to make a pension contribution of £3 650, her gross taxable income would reduce to £46 350 saving her £1460 in tax thus avoiding the tax trap.

Total tax savings after pension contribution = £1 460 (40% tax trap).

Example 2

Barbara earns a gross salary of £110 000 and is a Higher Rate Tax payer

Barbara contributes £10 000 of her salary to her pension on an annual basis reducing her taxable income to £100 000 per year.  By doing this, she saves £6 000 on her potential tax bill of £34 360.

*Personal allowance of £6,850 due to the tapering of income above £100,000 (whereby you sacrifice £1 of personal allowance for every £2 of income until your personal allowance is £0)

Total tax savings after pension contribution = £6 000 (60% tax trap).

Remember that the Tax Year end is coming up on 5 April. Act fast so we can help you submit those tax returns!

Note: Don’t leave it until the last minute.  Remember to allow 10 working days to  get funds in place.

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In the spotlight – adviser, Catriona McCarron

In the spotlight - adviser, Catriona McCarron

With it being International Women’s day today we thought it would be a good idea to shine the spotlight on adviser,  Catriona McCarron. She was recently nominated  for the 2019  Women in Financial Advice Award; the awards are designed to celebrate women in finance as women are still heavily outnumbered 1 to 6 in the industry. This nomination comes less than a month after Ascot Wealth Management took home the 2019  Professional Adviser Firm of the Year Award for the South East.

When asked why she chose to become a financial adviser she said “I chose this profession for the opportunity to make a difference on the ground level. With both my parents in finance I’ve been brought up with a positive attitude towards financial education, which gave me a constructive outlook to cash management from a young age. Financial advice is a career path paved by a certain generation, therefore I wanted to come into the sector with a fresh mind and greater my understanding of how clients benefit from reviewing their assets.”

We asked her a few more questions:

What was one of the most defining moments in your career?

I was recently named one of The Times top 250 advisers in the UK by VouchedFor, a site similar to Trip Adviser for financial services. This was a defining moment for me because it showed I’m on track to continue making a positive impact on my client’s finances. In the same week as my VouchedFor recognition in The Times, AWM won top Financial Adviser Firm in the South East, an award previously won by firms with a huge industry presence. This was a defining moment as it reminded me why small firms have a place in the industry.

Who do you most admire in life and why?

My admiration will always be for my parents. They’ve inspired me to follow my dreams and assisted by studies to get me there. In addition to recognising the role my parents have played in getting me where I am today, it’s also important to be influenced by other women leading the way in Finance. At university my dissertation focus was on Women on FTSE 100 boards, exploring whether the low levels of female presence was due to social or policy factors. During my research I became motivated by the women standing up to male board pressure. One of the women I particularly admired was Carolyn McCall, CEO of EasyJet since 2010. Carolyn has three teenage children and a healthy social life, whilst working to change business culture to be inclusive for all.

If you could witness any event of the past, present, or future, what would it be?

Sensibly speaking I would fast forward two years to see the full effects of Brexit to give greater clarity to my clients current planning! I would also like to sit as a fly-on-the wall for Theresa May’s discussions, maybe chipping in if allowed…

Happy women’s day to you all!

Who you are tomorrow begins with what you do today – Tim Fargo

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If you lived to be 90, will your pension be sufficient?

If you lived to be 90, will your pension be sufficient?

According to the Office for National Statistics the average life expectancy at birth for a UK male is 79.2 and 82.9 for their female counterparts. However, in 2017 alone there were 579 776 people aged 90 which begs the question, will your pension be enough if you lived to be 90?

Saving plans, such as pensions, were developed in another time when the typical  retirement might only last a decade. Since the introduction of a UK state pension in 1908, life expectancy has increased by 36 years due to scientists tackling life shortening diseases yet the retirement age has barely changed.

Some help is available already – the government is offering a generous tax relief on pension contributions while employers will save on your behalf. It is important to start saving as early as possible as for each year you delay saving for retirement, or don’t save enough, the proportion of your annual earnings you’ll need to put aside for your “golden years” will increase.

What are your options? You can start investing into a pension scheme today and make regular contributions to it or you can also look at investing into an investment scheme that suits your risk appetite to supplement your pension income.

The good news is you don’t have to find retirement solutions by yourself, contact us for your free initial meeting today.