Tax relief on pension – are you maximising the benefits?

Tax relief on pension contributions; Research suggests that many higher earners are not currently claiming the additional income tax relief due on their personal pension contributions.

Individuals generally receive Basic Rate Income Tax relief, at 20% at source on their pension contributions. However, any Highter Rate Income Tax relief for 40% and 45% taxpayers, has to be claimed from HM Revenue & Customs each year.  Many are not doing so and therefore miss out on a large proportion of the tax relief available.

Also, a large number of higher and additional rate tax payers are not utilising pension contributions at all to reduce their large Income Tax liabilities. Earnings of just over certain amounts; £50,000 and £100,000 are trigger points for losing entitlement to Child Benefit payments and the point at which you begin to lose your Personal Allowance respectively. Those affected can utilise pension contributions to reduce their income below these levels. This can result in those pension contributions having an effective rate of tax relief far greater than ordinarily available.

The future of pension tax relief

Although nobody can be confident of the result of the upcoming General Election, It is reported that both Conservative and Labour intend to restrict tax relief on pension contributions for the highest earners. It may, therefore, be sensible to consider making any planned pension contributions sooner rather than later to avoid the possibility that you may be adversely affected by any such changes.

For those wishing to maximise the benefit of the current pensions tax regime there may be the potential of making a large single contribution by utilising the Carry Forward Rules (where an individual can potentially utilise unused annual allowances from the three previous tax years, in addition to the current allowance). This would maximise the current tax year pension contribution that can be made and receive tax relief – assuming that they satisfy the relevant criteria.

Please do not hesitate to contact us, for more details on maximising tax relief on pensions.