Getting ready for retirement: How to make the most of your tax allowances

From tax relief to savings allowances, planning ahead for your retirement offers many opportunities to add more to your pension pot. Read on and speak to an adviser to see how you can best prepare for your financial future.


  • Retirement creates lots of new opportunities, and as you get closer to the event, it’s worth thinking about your options – including your tax allowances.
  • No matter your plans, assessing your assets and how to use them as tax efficiently as possible will help you reach your goals.
  • Aspiring to have peace of mind upon retirement is a common aim, and an easy way to achieve this is by making the most of various allowances, from ISAs and pensions to dividends and capital gains.

The omnipresence of retirement is felt by many, and though it can seem daunting to get your financial ducks in a row, it’s probably easier than you think! Alongside the excitement of planning your future as a retiree – whether you’re jetting off and travelling the world or looking forward to spending more time with your family – planning ahead to give yourself plenty of options and make full use of all your tax reliefs and allowances is worth dedicating some time to.

Tony Clark, Senior Propositions Manager at St. James’s Place Wealth Management, says:

“Saving enough in a tax-efficient way helps to buy you plenty of choices, whereas previous generations didn’t have to think about this.”

Paving the way

The first step in planning for your post-retirement financial future is figuring out your personal goals and refining the details. Have a think about:

  • When do you want to retire?
  • What kind of retirement do you want?
  • Can/Should you keep working in retirement?
  • Where will you get your retirement income from?

No matter your plans, assessing your assets and how to use them as tax efficiently as possible will help you on your way.

Whether you want to retire early, continue working once retired or embark on new ventures, the foundation of your retirement plan is likely to be solidly based on ISAs and pensions. As they both provide different forms of shelter against tax on dividends, interest and profits, using them in a smart way can help your money go much further.

Making your money go further

So, how do you use your ISAs and pensions in a smart way? Initially, you may want to focus on making sure you use your full pension annual allowance. This allowance remains frozen at 100% of your earnings or £40,000 – whichever is lower – and if you don’t use it all, you can still carry forward any unused allowance from the previous three years. Clark continues:

“Look at what assets you have in place and invest in a tax-efficient manner across a broader range of assets. You want to look at pensions and ISAs, of course, as well as other products with varying degrees of risk and tax efficiencies.”

Another way to make the most of your finances comes from profits made when selling assets outside of your ISA or pension. When you sell these assets, the annual Capital Gains Tax (CGT) exemption allows you to make tax-free gains of up to £12,300 in the current tax year. It’s important to remember in this case, however, that you can’t carry unused allowances over into the following tax year, so, if you can, use the full allowance each year.

The Personal Savings Allowance (PSA) can also help if you happen to have used up your ISA allowance. With a PSA, you can earn interest of up to £1,000 this tax year if you pay Income Tax at the basic rate (reducing to £500 for higher-rate taxpayers and to zero allowance for additional-rate taxpayers).

Any dividends you receive are also worth thinking about at this stage. To your benefit, dividend income that falls within your personal allowance, and any dividends from investments held in ISAs and pensions, are tax-free. Plus, you can also earn up to £2,000 in dividends tax-free outside of these borders.

But keep an eye out! Tax rules are changing, so the Dividend Tax charged above the £2,000 allowance will rise in April 2022. For basic-rate taxpayers, it will go up from 7.5% to 8.75%, from 32.5% to 33.75% for higher-rate taxpayers, and from 38.1% to 39.35% for additional-rate payers.

Seizing the opportunities

The ups and downs of the past couple of years have made a lot of us feel like we need to revisit our retirement plans, and now may be the perfect time to make changes, according to Clark. He says:

“There are lots of ways to achieve what you want, and an adviser will help you understand the most tax-efficient way of getting there, such as the actions you need to take, the allowances to make the most of and the best order in which to use them.”

Keeping on top of changes to tax allowances is just one way an adviser can help make a real difference as you approach retirement.

With the end of the tax year on 5th April 2022, don’t let your tax allowances go to waste. Time is on your side – speak to us today!

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.