Savings in retirement

Thefrugalwhippet

Hi,
Just wondering how savings are taking into consideration when you retire? If for example I have £120,000 in my ISA by the time I retire will I get taxed on that? I'm a bit confused on how income tax in retirement works. My Mum has a total of just over £10,000 a year income in pensions but she also has savings and gets taxed.
I'd hate to build up savings intended to see me through my retirement only to be taxed a whopping amount on them each year!

R_P_W

But they are in an isa?

bryanb

You'll get the same tax free allowances as before. Your pension will be taxed as it was not taxed when you paid in. Your savings interest (only the interest)will be taxed unless your total income inc interest is covered by your tax free allowance. ISAs are tax free.

Freecall

Probably the easiest way to look at things is that nothing changes.

Anything protected in an ISA will stay tax free, anything outside will be subject to tax.

You will get the same tax allowance and the same rates of tax will apply should your income exceed that level.

Your_Hero

Thefrugalwhippet wrote: »

Hi,
Just wondering how savings are taking into consideration when you retire? If for example I have £120,000 in my ISA by the time I retire will I get taxed on that? I'm a bit confused on how income tax in retirement works. My Mum has a total of just over £10,000 a year income in pensions but she also has savings and gets taxed.
I'd hate to build up savings intended to see me through my retirement only to be taxed a whopping amount on them each year!

Taxation in retirement does not change - it's the same as how you are taxed now. For money held in taxable accounts, only the interest you receive is taxed (20%), the capital is not taxed.


The money you hold in ISAs are tax-free (Except for dividends) for as long as the government keeps it that way. Who knows what will happen in the future.

xylophone

http://www.hmrc.gov.uk/taxon/worked-examples.htm for the current tax year and https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293747/Fact_sheet_template_-_10__tax_9.pdf

for subsequent tax years ( non- ISA savings income).

atush

it sounds like your mothers money (unlike yours) is not in Isas so she should look into that?

As for yours, if 120K is all in cash, it is losing ground to inflation so I would put some of it in S&S isas, ie the money set aside for 10-30 years from now?

bigadaj

Thefrugalwhippet wrote: »

Hi,
Just wondering how savings are taking into consideration when you retire? If for example I have £120,000 in my ISA by the time I retire will I get taxed on that? I'm a bit confused on how income tax in retirement works. My Mum has a total of just over £10,000 a year income in pensions but she also has savings and gets taxed.
I'd hate to build up savings intended to see me through my retirement only to be taxed a whopping amount on them each year!

As before nothing changes.

In retirement you'll be drawing on your investments rather than leaving them accumulate or be adding to them.

Anything in an isa and income you draw from it is tax free, anything from a pension is subject to tax, against which you have a personal allowance. So assuming you have £120k and get a 5% return which you draw on then that is £6000 per year on which you pay no tax because it's an isa. If you then get a state pension of say £7000 per year, and a company or personal pension of say £7000 per year, then that's £14000 exposed to tax, so you deduct the personal allowance, say £10k, and so only pay tax on £4k. So your tax bill will be £1000 per year, though your total income is £20000 gross.

AlwaysLearnin

If your mum's taxable income is just over £10k, then she may be able to claim some of the tax back:

http://www.hmrc.gov.uk/taxon/ten-percent.htm

and perhaps more/easier after Apr 15:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293747/Fact_sheet_template_-_10__tax_9.pdf

Edit: just noticed that xylophones links above are pretty much the same...

wannaberichbtch

Sorry to hijack this thread but the information may be useful to others as well. Next year and the following year I am considering salary sacrifice into my occupational pension to take my earnings down to £10,500 pa, as I read the rules I would also be entitled to tax free interest on my cash savings in banks and building societies(Outside ISA obviously) If I complete an R85 and that interest payment is below £5000 per annum, am I correct? Thanks in advance for clarification.

AlwaysLearnin

That might work, depending on your circumstances, e.g. you can't use salary sacrifice to take you below minimum wage.