Effective tax planning can help families to save thousands of pounds each and every year. Taking advantage of a personal allowance means that someone is able to pay less tax, meet rising household bills and save additional money for the future. The majority of tax breaks are in-place to encourage families to do just that. For example, pension contributions are not only a means of tax avoidance, they also help families make suitable retirement provisions.
What is Tax Planning?
Professional tax planning or tax avoidance involves minimising or deferring the amount of taxation paid in a legally compliant way. It involves making a series of fundamental changes to the way a family uses and receives their money. It must be distinguished from tax evasion as this can result in serious legal consequences, such as imprisonment.
Pay Less Tax by Increasing Pension Contributions
Making adequate retirement provision is an important part of tax planning. Pension contributions are vital as they ensure that a senior has a sufficient retirement income. Higher-rate tax payers enjoy significant tax relief; for every £60 contributed, £100 goes into the pension pot. The percentage of a salary that can be contributed increases with age.