Pensions are now more flexible than they have ever been and remain extremely tax-efficient. You’ll receive tax relief at the basic rate of 20% on contributions made to personal and workplace pensions. So for every £80 you pay in, HMRC will top it up to £100. If you’re a higher or additional rate taxpayer, you can claim back up to an additional 20% or 25% through your self-assessment tax return.
However you’ll need to watch out for the annual pension allowance. This is the limit on the amount that can be contributed to your pension each year while still getting tax relief. For the 2018/19 tax year, for most people it’s £40,000, or the value of your whole earnings – whichever is lower.
Lower allowances may apply if you have already started drawing a pension, or if you are a higher earner with income plus pension contributions that total above £150,000.
If you’ve used your full allowance in the current tax year but not in recent years, you may also (depending on your circumstances) be able to ‘carry forward’ any annual allowance that you haven’t taken advantage of in the three previous tax years.
To discuss this or any other aspect of your tax planning contact Wild & Co Chartered Accountants on 01423 222710.