2021 Early Tax Year End Planning Pensions

Published / Last Updated on 07/12/2020

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.

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