Pensions and tax can be two of the most problematic subjects for your lifetime planning. Pension planning is a frequently used tax strategy, with HMRC estimating that pension tax relief cost the Exchequer £34.2 billion in 2014/15. That’s why we want to help with pension planning advice.
Here are a few tips and tricks from our pension planning advice below to make your pension pot as efficient as possible:
Claim higher rate tax relief
In April 2016 a standard pension annual allowance was introduced of £40,000 per person. This is the maximum that you can invest into your pension tax-free, provided that your total adjusted income doesn’t exceed £150,000. The standard annual allowance reduces by £1 for every £2 of your income that exceeds the £150,000 threshold. This means that if you are earning more than £210,000 or more, the maximum allowance reduces to £10,000.
Unused pension allowance
If you haven’t used your full pension allowance in previous years and are part of a registered pension scheme, it is possible to bring forward any unused allowances from as early as 2013/14. However it is important to make sure that you don’t exceed your available allowance. If your contributions do go over the allowance available, a tax charge will arise.
Protecting a pension pot
The lifetime allowance currently stands at £1 million and any contributions made over this amount will incur a penalty charge. Prior to 6 April 2016 the limit was in fact £1.25 million and if you have a pension pot larger than £1 million you can elect for ‘individual protection 2016’ which has the effect of protecting the lifetime allowance.
A pension for your children
If you are a UK resident you are entitled to a stakeholder pension. If you have funds available, it is possible to contribute up to £2,880 net into a pension each year for anyone in your family, including children or grandchildren who have no income.
If you don’t need to draw down on your pension, it is possible to write it into trust for your children to inherit after your death, completely free of inheritance tax.
If you have any questions, please contact Michael Burgess or Rebecca Thorley on 01782 279615.