With the pension tax breaks in the UK reported to cost the government over £38.6bn according to the Financial Times, fears are growing that this benefit may not be around forever.
Use it or lose it – Pensions
With only a few weeks left until the end of the tax year, a number of people will be thinking of ways in which they can reduce their tax bill before its too late. One way in which you can reduce your tax bill and help towards funding your retirement is by paying into a pension.
How do pension contributions reduce your tax bill?
For most people, provided you are under 75 and a UK resident for tax purposes, you can pay £3,600 or 100% of net relevant earnings up to a maximum of £40,000 into your pension each tax year. If you are a member of a scheme and have not paid in for a while you should in most circumstances be able to go back three years and pay those contributions in also if you are looking at maximising tax relief.
How this works in reality:
- You decide you would like to pay £40,000 into your pension.
- The scheme normally gives basic rate tax relief at source so in order to pay in £40,000 you write a cheque for £32,000 and the government pays the rest in tax relief so your contribution totals the £40,000.
- If you are a higher or additional rate tax payer you can obtain further tax relief through your self-assessment, which results in a reduction in your tax bill.
Taking your pension benefits has become more flexible
Recent changes made by the government have made pensions more flexible than ever and there are new inheritance tax benefits which make them particularly beneficial when planning for the longer term. Paying into a pension carries tax benefits which are viewed by some as too generous. This is the reason there are often worries that the government may be set to change or take these benefits away.
Our Financial Planners at our offices in Worthing are here to help
If you have a tax liability for this tax year and would like to find out ways in which this can be reduced or eliminated before the 6th April, please get in touch and one of our financial planners at our office in Worthing can discuss this further with you.