Tax relief is available for gross pension contributions up to £40,000 each year. Since 6 April 2016, however, the allowance is tapered for those whose income exceeds £150,000. The allowance is reduced at the rate of £1 for every £2 of excess income, until the allowance reaches the minimum of £10,000 i.e. when income is £210,000 or more.
Unused allowances can be carried forward for three years provided a pension scheme was in place in the year in which the relief originally arose. Those with unused relief from the years ended 5 April 2016, 2017 and 2018 may, therefore, be able to make use of previous allowances before 6 April 2019.
If a pension pot is accessed flexibly then the Money Purchase Annual Allowance rules could be triggered, restricting the annual allowance to £4,000.
Those with taxable income between £100,000 and £123,700 (£125,000 in the 2020 tax year) who are taxed at an effective rate of 60% due to the loss of the personal tax allowance can benefit from enhanced tax relief on their pension contributions. We will be delighted to prepare computations to show you the tax savings you could make.
The lifetime allowance for the 2019 tax year has increased to £1,030,000 from £1,000,000. For the tax year ending 5 April 2020 the lifetime allowance will be £1,055,000. Withdrawals from a pension in excess of this amount are likely to incur a tax charge at 55% on a lump sum withdrawal or 25% on an income withdrawal.
Since pensions have become significantly more flexible, they can also assist with inheritance tax planning.
Whenever you are thinking of investing in or planning with pensions, it is essential to take specialist pensions advice.
