The 2017/18 tax year ends on 5 April 2018. Here are a few tips on how to make the most of your pension tax relief before the tax year is over.
Make contributions from your limited company
As many of you run your own companies, you can choose to make employer contributions into your pension. Employer pension contributions count as an allowable expense, so these can be offset against your Corporation Tax bill. The current Corporation Tax rate is 19% so if you make a £10,000 pension contribution, you’ll save £1,900 in Corporation Tax. Another point worth noting is that by contributing to your pension rather than you receiving the money as a salary, you can save 13.8% in National Insurance contributions.
What if I’m a high earner?
The maximum that you can invest into your pension tax-free each year is £40,000 per person. You may be aware that from April 2016 this annual allowance is reduced by £1 for every £2 of your income that exceeds the £150,000 earnings threshold. This means that if you are earning more than £210,000, the maximum allowance reduces to £10,000.
If you are being paid a salary from your company and have been automatically enrolled in the company pension scheme, contributions being made by both you and company will count as contributions towards your annual allowance. If you are planning to pay a lump sum into your pension, you need to check the amount already paid through payroll, otherwise you will suffer income tax at your marginal rate on any excess contributions made in the year.
Carry forward some of your annual allowance
If you’re going to exceed your annual pension contribution allowance for the 2017/18 tax year you may be able to use some unused allowance from a previous tax year. You can carry over allowances from the last three years as long as you were a member of a registered pension scheme during those years.
For example, if you only contributed £25,000 into your pension in 2016/17 you have £15,000 of unused allowance available for 2017/18 in addition to your annual amount of £40,000, making it possible to contribute £15,000 this year.