All about tax wrappers Tax wrappers are accounts that shield your money from unnecessary tax. But what are the different types of tax wrapper, how do they work and which ones should you be looking to take advantage of in the 2021/2022 tax year?
Pensions With more than two-thirds of the UK population saving into one, a pension is one of the most accessible and cost-effective tax wrappers around. All pensions are designed to pay you an income in retirement and most are portable, able to move with you to different companies and providers. The government offers several incentives to ensure you use a pension to prepare for life after work, including tax relief on your pension contributions. There are three main types of pension.
Defined benefit
Employer pension
Personal pension
Very few employers still offer these final salary pensions, which are based on your earnings and years of service.
You and your employer pay contributions into a pension scheme, usually arranged via your employer.
Personal pensions, such as Self-Invested Personal Pensions (SIPPs), allow you to choose your investments from a range of assets.
20%
TAX RELIEF
40%
TAX RELIEF
45%
TAX RELIEF
Pensions offer tax relief at 20%, 40% and 45% depending on your tax band. No capital gains tax (CGT) or income tax is charged on gains within your pension. Savings can usually be passed on with no inheritance tax (IHT) or income tax if you die before 75.
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Wealthsmiths Summer 2021
