As the end of the tax year approaches, it’s time to think about pension contributions. For the 2024/25 tax year, the annual allowance, the maximum you can contribute to your pension without incurring a tax charge is £60,000.
However, this limit isn’t the same for everyone. If you earn less than £60,000 this tax year, your annual allowance is capped at 100% of your earnings. High earners with an adjusted income over £260,000 will see their allowance reduced by £1 for every £2 earned above this threshold, down to a minimum of £10,000. Additionally, if you’ve accessed your pension flexibly, the Money Purchase Annual Allowance (MPAA) of £10,000 may apply.
Even if you’re not earning, you can still contribute up to £3,600 gross into a pension each year and receive basic rate tax relief. This is a useful strategy for non-earning spouses or children.
Contributing to your pension can also help manage your income tax. For example, if you’re earning £55,000, making a £4,730 pension contribution can reduce your taxable income, potentially lowering your tax rate.
If you haven’t used your full annual allowances in the past three years, you can carry forward unused allowances. This means you could potentially contribute up to £200,000 this tax year, combining unused allowances from the previous three years with this year’s allowance.
It’s important to note that while the annual allowance is £60,000 for 2024/25, future allowances aren’t guaranteed to remain at this level. Therefore, maximizing contributions now could be beneficial.
To make sure your contributions are credited for this tax year, be mindful of your pension provider’s deadlines. For instance, some providers require completed contribution forms by 21 March 2025 and payments by 4 April 2025.
In summary, reviewing your pension contributions before the tax year ends can provide significant tax benefits and enhance your retirement savings. Consulting with a financial adviser can help tailor these strategies to your personal circumstances.
Need help maximizing your pension contributions before the deadline? Don’t leave money on the table—our team at SJB Global are here to guide you through the process. Contact us today to make the most of your allowances and secure your financial future!
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