best time to retire

ken c | 20:11 Fri 04th May 2007 | Business & Finance

6 Answers

what month in the year is the best time to retire for income tax purposes. or does it not matter My wife working in local goverment plans to retire in January but has been told it is better to wait untill April.
anyone help??

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kags

From a purely income tax point of view, I can't see any advantage - one is entitled to the full tax allowance for the tax year regardless of when one retires. Retiring in January may result in a small tax refund, but this would depend on the amount of pension being received. There may be be pension considerations however, could it be that this is why the advice has been given?

kwicky

I think your wife is right to retire in January. You pay tax from week 1 based on your earnings for the year. ie you do not need to wait until your tax allowance has been used up before paying.

Therefore when you get to January you have paid tax for approx 3/4 of your yearly expected earnings. If there is no further income when you reach the end of the tax year your tax payment will be in surplus and you will get a refund, whereas if you carry on working till the end of the tax year will receive no refund.

In a similar vein some years ago couples got married near the end of the tax year in March and received a married persons allowance backdated to the start of the tax year so many chose this option.

The difference between the two is that the first instance is based on income spread and the second is based on using the new allowance to the full.

kags

yes she may get a refund if she retires in January (depending as I said above on the amount of pension to be received)but she would have received 2 or 3 month's less income in the first place!

ken c

Question Author

many thanks for your answers. nice of you to help

dzug

Note that the tax refund if things work as they should will be paid by paying less tax on the pension from January to March, not as a lump sum later.

ken c

Question Author

oh well anything back will be welcome.
thanks for that dzug we wont plan on a holiday paid by the tax man.
thank you all for your answers.

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