Member Article

Maximising your pension tax relief

National IFA, LEBC Group (LEBC) views 5 April 2016 as a major landmark date for tax relief on pension contributions.

Individuals can get tax relief on 100% of their taxable earnings up to £40,000 invested into their pension this tax year. That means the money invested into a pension will be topped up by the Government to reflect the income tax paid on it. So a basic rate taxpayer investing £8,000 into their pension would get £2,000 added via tax relief. Employers can pay up to this amount (including any employee payments) into an employee’s pension for each tax year.

For the current tax year, an additional amount paid up to 9 July 2015 and up to £40,000 will qualify for tax relief. It is also possible to carry forward any unused annual allowance from the previous three years and catch up on contributions individuals may have missed. So potentially they could invest up to £190,000.

Kay Ingram, director of individual savings and investments at LEBC says, “From 6 April 2016, the relief on pensions will alter for those with earned income of more than £110,000 and total taxable income including any pension payments made of £150,000. The relief they get on pension payments will be restricted on a £2 for £1 basis until it is reduced to £10,000 for those with adjusted income of £210,000 or more. Those with carry forward relief may be able to taper the impact of this for 2 to 3 years. However relief available for 2012/13 drops out of the reckoning on 5 April 2016 and will be lost forever.

“Paying in the maximum this year with the benefit of top rate tax relief may be beneficial as the Government have signalled that they may also reduce the rate of relief so that top and higher rate taxpayers may get less relief.”

This was posted in Bdaily's Members' News section by LEBC Group Ltd .