1. Get 50% tax relief while you can
- The highest rate of income tax drops from 50% to 45% from April, so there is an additional 5% relief by paying to pensions this tax year.
- Don’t over-egg the pudding, once a pension payment takes your income below the 150,000 additional rate threshold, relief on the balance drops to 40%.
2. Pay employer contributions before corporation tax relief drops
- Corporation tax rates are falling. So companies should consider bringing forward pension funding plans to benefit from tax relief at the higher rates.
- For the current financial year the main rate is 24%. This drops to 23% for the new financial year starting 1st April 2013 and is expected to be at 21% the following year.
3. Sweep-up unused allowance from 2009/10
- The clock is ticking. Unused pension annual allowance from 2009/10 must be used this tax year or its lost forever.
- Clients already in their 2013/14 Pension input Period (PIP), who still have unused allowance from 2009/10, could start a new contract to sweep this up.
4. Make the most of the 50,000 pension allowance
- The annual allowance drops to 40,000 from tax year 2014/15. But the PIP rules mean it hits some clients from April this year.
- Carry forward for the 3 previous years back to 2010/11 will still be based on a 50,000 allowance. But over time, the new 40,000 allowance will come into the calculation and dilute what can be paid.
5. Use next years allowance now
- You may want to pay more than your 2012/13 allowance even after using up all of your unused allowance from the 3 carry forward years. To get round this, pay against 2013/14 before 6 April by closing the 2012/13 PIP early. This opens up the 2013/14 PIP – allowing an extra 50,000 to be paid in this tax year.
- This might be good advice if you have a particularly high income for 2012/13 and want to make the biggest contribution you can with 50% tax relief.
6. Recover personal allowances
- Pension contributions reduce an individuals taxable income. So they’re a great way to reinstate the personal allowance and the age related element of personal allowance.
- Personal allowance. For a higher rate taxpayer with taxable income of between 100,000 and 116,210, an individual contribution that reduces taxable income to 100,000 would achieve an effective rate of tax relief at 60%.
- Age related element of personal allowance. If you are between the ages of 65 and 74, a pension contribution reducing taxable income to below 25,400 will reinstate the age related element of your personal allowance.
7. Avoid the child benefit tax charge
- An individual pension contribution can ensure that the value of child benefit is saved for the family, rather than being lost to the new child benefit tax charge.
- The child benefit, worth 2,449 to a family with 3 kids, is cancelled out by the tax charge if the taxable income of the highest earner exceeds 60,000. There is no tax charge if the highest earner has income of 50,000 or less.
8. Sacrifice bonus for employer pension contribution
- It is bonus season again. Sacrificing bonus for an employer pension contribution before the tax year end can bring several positive outcomes.
- The employer and employee NI savings made could be used to supercharge pension funding, giving more in the pension pot for every 1 lost from take-home pay. And taxable income is reduced, potentially recovering personal allowance or avoiding the child benefit tax charge.
9. Boost SIPP funds now before moving to flexible drawdown
- If you are considering a move to flexible drawdown in the new tax year, the remainder of this tax year is the last opportunity to make tax efficient pension savings.
- No pension contributions can be made in the year flexible drawdown starts. And contributions in the tax years after starting flexible drawdown all suffer the annual allowance tax charge.
10. Fund and protect above the new 1.25m Life Time Allowance (LTA)
- With the lifetime allowance set to fall to 1.25m from April 2014, you may be weighing-up the pros and cons of electing for the new fixed protection 2014 to lock into a 1.5m LTA. But you’ll have to stop paying into pensions after 5 April 2014. So this only leaves a short window to maximise tax efficient contributions and build a bigger retirement pot.
All sources; Standard Life 14th February 2013
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