Time is running out to make use of your pension contribution allowances and save tax

By Simon Ewings Posted 24 January 2019

Use your pension contribution allowances before the 6th April 2019!

Since April 2011, those contributing to a pension have been able to mop up unused annual allowances from the previous three tax years. This has been useful for those wanting to contribute more than their annual allowance for any given tax year.

However, since April 2016, people with ‘high’ incomes have had their pension annual allowance reduced.

The rules are complex but in broad terms:

       -  someone with total income of £150,000 or less can contribute the standard ‘annual allowance’ of £40,000 per annum into a pension.

       -  those with a total income of more than £210,000 can only contribute £10,000 per annum.

       -  whilst those earning between these amounts have a tapered allowance somewhere between £40,000 and £10,000.

Those with high incomes caught in the “annual allowance trap” have found the ability to Carry Forward unused allowances particularly useful but the window of opportunity is closing.

Annual Allowance

This year (2018/19) could represent the last time a high earner can carry forward a previous annual allowance of up to £40,000, because of when the tapered annual allowance rule came in.  The diagram below shows the maximum annual allowance and Carry Forward position for a high earner.

WM_Carry_Forwards_table

Whilst the tapering rules were introduced from 16/17 many have not yet felt the full effects, due to the ability to carry forward their unused higher standard annual allowance.  Those effected by this rule change should review their position now, before the 19/20 tax year, since from that date the ability to fund for retirement in a tax efficient manner could be seriously curtailed.

If you think you could benefit from this planning, please get in touch with us. Please note that the information in this article should not be relied upon as financial advice. Please always speak to a suitably qualified professional before making any financial decisions.

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