Continuing our Year-End Planning Series in this part we cover Pensions and some of the key things for consideration in order to fully utilise your annual pension contributions before the year-end.
The amount of tax-deductible pension savings that can be made for each individual is limited to the ”˜annual allowance’ which has been £40,000 per tax year since 6th April 2014.
Since 6th April 2016 the annual allowance for individuals with income of more than £150,000 has been reduced by £1 for every additional £2 of income between £150,000 and £210,000, resulting in an annual allowance of £10,000 for those with taxable income of £210,000 or more.
Where pension savings for the last three years have been lower than the annual allowance for the relevant year, there may be scope for catching up on pension savings in the current year.
In addition to these complexities, the ”˜lifetime allowance’, which is the total savings that can be accumulated in registered pensions without incurring a tax charge, will need to be considered.
Pension contributions provide tax relief at your highest marginal rate of income tax. This can be very valuable if you are a higher or additional rate tax payer providing income tax relief at 40 or 45%. If your income is only just within an income tax banding a pension contribution can take you into the tax banding below.
Following on from our first bulletin if your income is within the £100,000 – £123,000 level then you are paying income tax at up to 60% due to loss of personal allowance. A pension contribution could be used to reduce your income to £100,000 or below and thus reinstate your personal allowance.
Finally, if you are a company owner pension contributions made by the company into pension schemes qualify (in most instances) for relief against corporation tax and may be an efficient method of extracting value from the company without incurring income tax and national insurance payments.
At RB we review pension plan with our clients throughout the financial year, however if you feel that you need to review this again in advance of the year-end please contact us to discuss.
Released next week will be part 3 focusing on Capital Gains & Inheritance Tax.
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