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McPhail says ‘bed and Sipp’ to maximise tax relief

Advisers should encourage clients to claim 22 per cent tax relief on pensions before it falls to 20 per cent from April 6, says Hargreaves Lansdown.

Head of pensions research Tom McPhail says a client considering investing £10,000 in a pension could be around £1,800 better off after 30 years if they make the contribution in the current tax year.

The rate of pension tax relief will fall alongside the reduction in basic-rate tax from 22 to 20 per cent from April 6.

McPhail says investors with existing shareholdings should consider securing the extra tax relief by moving these holdings to their pension.

He says a “bed and Sipp” arrangement is one way to benefit and involves investors selling existing shareholdings, contributing the proceeds to a pension, claiming tax relief and repurchasing the same shares inside the pension. For each £10,000 of shares or funds transferred into the Sipp in this way, the Government will inject £2,821 tax relief but this will drop to £2,500 when the new rate of relief comes in.

McPhail says: “This is a great opportunity for investors to claim tax relief on shares they already own. It makes sense to act now.”

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