Use it or Lose it: Carry Forward of Unused Pension Tax Relief Allowances for the last 3 years.
Watch your income levels when planning pensions – use pensions to reduce your ‘earnings’ into new tax brackets or save allowances.
Tapered Annual Allowance: For every £2 above the Adjusted Income Threshold of £240,000, your pension annual allowance is reduced by £1. What this means is without early action if your package is worth more than £240,000 your pensions annual allowance could fall to as low as £4,000 resulting in huge tax charges if you/your employer are making significant pension contributions.
Losing Personal Tax Allowance: For every £2 you earn over £100,000, your personal tax allowance (£12,500) is reduced by £1. This means that if you earn £125,000 you have zero personal allowance, that’s an equivalent tax rate of over 60%. By making pension contributions early, you can reduce your earnings to below £100,000 and get your full personal allowance back.
Child Benefit: If you earn more than £50,000 pa, you start to have child benefit reduced. If you earn more than £60,000 your child benefit is reduced to zero. By making pension contributions to keep your income at or below £50,000 you protect your child benefit.
Pensions for non-earners and low earners. If you pay have no taxable earning income (e.g. a pensioner, a child, a student) – you or relatives can pay in £2,880 net into a pension scheme and get free tax relief of £720 added to your pension to take it up to £3,600. That’s £720 for free despite being a non-taxpayer. If you are over 55 – you could even then cash it in the next day. 25% tax free lump sum and the balance subject to tax but if you are a low earner (£12,500), that could even mean no tax at all – i.e. pay in £2,880 and withdraw £3,600 a few days later.
Don’t wait, get some early tax year end planning done now. Contact us.