Sigh of Relief
In recent years, pension allowances and reliefs have gradually been squeezed. Further cutbacks are on the horizon and so, as the end of the tax year draws near, now is the time to take maximum advantage.
Pensions are still the most tax-efficient way to save for retirement - it doesn’t matter if you are self-employed, employed, a business owner or even retired. Eligible contributions to an approved pension plan are subject to tax relief at your marginal rate:
20% for Basic Rate Tax Payers
40% for Higher Rate Tax Payers
45% for Additional Rate Tax Payers
60% if earned income is between £100,000 and £122,000
There are now just a few weeks to take advantage of some of the pension saving incentives which will be lost in April 2017:
Annual Allowance (AA) Carry Forward
Carry forward allows you to make use of the balance of unused allowances from the three previous tax years (earliest first). In 2013/14 the Allowance was £50,000. That will be lost on 6th April if not used in full.
Money Purchase Annual Allowance (MPAA)
If you have cashed in a pension plan or flexibly accessed income from pension funds, you cannot carry forward any previous year’s Annual Allowance. Instead, the MPAA limit applies which is currently just £10,000. From the 6th April 2017, it gets worse - the MPAA will reduce to just £4,000 per annum.
Tapered Annual Allowance
If your income from all sources (including employer pension contributions) is over £150,000, your £40,000 Annual Allowance will be reduced by £1 for each £2 above the threshold. The minimum Allowance will be £10,000 (when income reaches £210,000).
However, if your income excluding employer pension contributions and net of any personal pension contributions is below £110,000, the taper will not apply. A large personal pension contribution using carry forward could bring your “threshold income” below £110,000 and restore your full £40,000 Annual Allowance for 2016/17.
Employer Pension Contributions
With Corporation tax rates due to fall from 20% to 19% on the 1st April and further cuts expected over the next 3 years, now is the time for business owners to maximise pension contributions to benefit from higher rates of tax relief.
To discuss further or to arrange a face to face meeting please contact us.