Tax year end planning – Pensions

Tip – as the tax year end approaches, make sure you have used all of your allowances

There are allowances each year that can reduce tax, receive tax relief and/or provide tax free growth. These need to be used up before the tax year end (5th April each year) and if they aren’t, they may be lost. Tax years run from 6th April to 5th April. In a series of blogs, I will look at the various allowances for Pensions, ISAs, Capital Gains Tax, gifting annual exemptions, VCTs and EISs. This blog will cover pension contributions.

Pension Contributions

Each year, you can receive tax relief on payments into your pension. For most people, the amount is restricted to 100% earnings capped at £40,000. For those with an income in excess of £110,000, this amount may be capped at £10,000.

When you are taking an income from your pension, the amount you can pay in may be restricted to £4,000. If you are unsure as to whether this affects you, you should contact your financial adviser.

If you do not have any earnings, you can pay in £3,600 gross (including tax relief) which would cost you £2,880 net. These allowances could be used for making pension contributions for children/grand-children or for spouses who have no earnings, or even someone already retired. You should seek financial advice before looking into these options.

Companies can make contributions to their employees’ pensions on their behalf. The amount they pay needs to be deemed to be appropriate by the local inspector of taxes based upon their role and pay. The contributions made are free from Corporation Tax and the payments are linked to the business year end (rather than tax year end).

Generally, if you don’t use these allowances, you will lose them. There are rules regarding utilising previous years’ allowances where they haven’t been used. However, financial advice should be sought.

To find out more about pensions, click here or to find out how much you can pay into a pension, click here.

Pensions may not be right for everyone therefore seek financial advice.

The tax year end is a significant cut off in Financial Planning. These allowances if not used, on the most part will be lost. I work with my clients to ensure utilising these allowance is not left until the very end of the tax year. However, if you haven’t utilised these allowances, you may want to speak to a Financial Adviser pretty sharpish.

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