Pensions are one of the most tax-efficient ways to save for your future, but there are limits on the tax relief you can receive in each tax year. With the end of the tax year just a few months away, it’s a great time to look at your pension and make sure you’re making the most of the available benefits.
Pension contributions as tax planning
Contributions to your pension attract income tax relief, which in simple terms means you don’t pay tax on the amount you pay into your pension. For example, if your income was £50,000 and you pay £10,000 into your pension, you’ll only pay tax on the remaining £40,000 – which at the time of writing would save you £2,000 in tax (20% of £10,000).
The Limits on pension contributions
The amount you can contribute and claim tax relief on will be limited by your “relevant earnings” – this includes:
Employment income (including salary, bonuses, overtime and commissions)
Self -employed individual’s profits from the trading year ending in the tax year. For partners, their share of profits
Benefits in kind
The taxable part of redundancy payments - the first £30,000 is tax free
Taxable payments in lieu of notice
Income which does not qualify includes:
Dividends
Savings income
Rental income
Pensions in payment
State benefits
Assuming you have enough relevant income available, you can pay up to £60,000 (2023/24) a year into your pension, though this may be lower if your adjusted income is more than £260,000, or you have accessed another pension plan using one of the flexible options introduced in April 2015.
What are the deadlines for contributions to your pension?
These limits are per tax year, so the deadline to make your contributions will usually be the 5th of April, when the tax year ends. However, you may be able to carry forward any unused allowance from the last three tax years.
If you have questions or if we can help in any way, please call our expert team on 01296 468483 or email info@orangegenie.com.