The start of a new year is a great time to make resolutions, including conducting a health check on your finances before the end of the tax year. With many tax allowances frozen, take time to consider whether you are doing everything you can to make your money work hard for you. This includes taking a good look at your pension – did you know that you can ‘mop up’ unused allowances from the past three years?
You can contribute as much as you like into your pension, but there is currently a limit on the amount of tax relief you can receive each year.
This annual allowance is currently £60,000. You can’t use the full £60,000 Annual Allowance where ‘relevant UK earnings’ are less than £60,000, although your employer can. You may be able to, however, carry forward unused allowances from the past three years, provided you were a pension scheme member during those years. Carry forward allows you to make pension contributions that exceed your Annual Allowance, while still benefitting from tax relief.
The current Threshold Adjusted Income Limit is £200,000 and the Adjusted Income Limit is £260,000. If your income plus pension contributions exceeds the Adjusted Income Limit, your Annual Allowance is reduced by £1 of every £2 you are over the Adjusted Income Limit.
A Lifetime Allowance places a limit on the amount you can hold across all your pension funds without having to pay extra tax when you withdraw money. This limit is currently £1,073,100 but the good news is that this will be completely removed on 6 April 2024.
If you have children under 18, a spouse who does not work, or who may not be earning enough to pay Income Tax, you can invest into a pension for them. The maximum annual contribution you can currently make is £2,880 which, along with tax relief, would amount to £3,600 a year.
Take sensible steps before the end of the tax year
Remember –the end of the tax year is only a few weeks away so it’s important to ensure you are in the best place possible to take advantage of any allowances, exemptions and reliefs available to avoid paying more tax than is necessary. We can assess the options to maximise your pension contributions.
Sensible tax planning can help to reduce the amount of tax you pay and safeguard your wealth for the future. We can help – please get in touch.
Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change. The Financial Conduct Authority does not regulate tax planning.