In a nutshell, if you’re a basic rate taxpayer you can essentially contribute £100 into your pension for just £80 with the Government contributing the £20 ie the tax relief.
If you pay a higher or additional rate of income tax you could benefit from additional tax relief which you can claim via a self-assessment tax return. The Government don’t contribute further into the pension plan, but they do give further tax relief by lowering your tax bill.
There is a generous limit on how much you can save into pension plans (annual allowance) and how much you can build up in all of your pensions (lifetime allowance) though it is restricted. It’s worth checking if you are caught.
The annual allowance is a limit on the amount of pension contributions you can make each year before you're taxed. The annual allowance for the 2021/22 tax year is £40,000. You can pay in up to 100% of your earnings or £40,000, whichever is lower, and receive tax relief on these contributions. You can also ‘carry forward’ unused annual allowance from the last three tax years.
The lifetime allowance is a limit to the amount you can build up in all of your pension plans when you start taking your pension savings. The lifetime allowance for 2021/22 is £1,073,100. If you take any of your savings and go over this limit, you may be subject to a lifetime allowance charge.
Until next time ...
ROGER EDDOWES Business Godparent
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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