camino kids tax

Tax planning for retirement is something many people started years ago and now they walk their first camino paid for by some good planning.

In the UK it's particularly important in the last few years before retirement to put as much savings into your pension put. 

You should not pay 40% tax or 42% in Scotland on any of your income. You should use savings 15 month credit cards of interest-free whatever tactic you need to ensure that you swell this pension pot.

I was proud to pay £500,000 income tax by age 46 but instead of making it to £1m I looked around and only saw tax dodgers.

So I drew the conclusion that self-flagellation was a pointless pursuit especially when it came down to income tax.

If you pay 40% tax on £10,000 of you income ( or in Scotland 42%) then you must put it in a pot and draw down from savings or use a credit card with a long date.

If you put £6000 (£5800) net into the pension it will immediately become £10000.

This is in your pot, a SIPP, as cash. It does not need to be invested. 

When you come to draw it down you get 25% tax free, £2500. The rest of your £10,000, ie £7500, you will pay your normal tax rate on. As you aren't working it won't be 42%>

If that is 20% you will pay only £1500 tax and get £6000 back plus your £2500 so £8500.

So you sacrifice £6000 after tax and you get £8500.

As soon as you start drawing down a pension you can only pay £3000 in a year. If you are working when you start to draw down you would take the tax free element only as your top line tax might still be 42%. I would only recommend this in the last year of you working depending on circumstances. I would absolutely recommend it for anyone who was made redundant late in life and was unlikely to pursue a high paying job.

It's important to know that it is April 6-april 5th tax years that apply not how old you are or calendar years.

Do this for 3 years and you'll have £30,000 in a SIPP or £18000 in an ISA if you choose to pay the tax instead.

Government changes as does legislation this could happen in Scotland or the UK.

Never think an ISA is safe as governments can and often do tax savings.

In the SIPP, all of your 30000 can be drawn down in year one, £7500 would be tax free with £22500 taxed @20% so £4500 tax leaving £18000 plus £7500 =£25500.

Plenty cash for that first CAMINO!!