28 November 2018
No change to pension tax relief for 2018-19
Despite many expecting pensions to be hit, the Chancellor brought good news for pension savers in the latest budget.
With no changes announced to pension tax relief or the annual allowance in England, it is still possible to contribute as much as you earn to a pension (up to a maximum of £40,000) and potentially benefit from up to 45% tax relief.
The Money Advice Service states that if you’re a UK taxpayer, in the tax year 2018-19 the standard rule is that you’ll get tax relief on pension contributions of up to 100% of your earnings or a £40,000 annual allowance, whichever is lower.
- If you earn £20,000 but pay £25,000 into your pension, you’ll only get tax relief on £20,000.
- If you earn £60,000 and pay £60,000into your pension scheme in a single year, you’ll normally only get tax relief on £40,000.
Any contributions you make over this limit won’t attract tax relief and will be added to your other income and be subject to Income Tax at the rate(s) applicable to you.
Planning point: You can carry forward unused allowances from the previous three years, providing that you were a member of a pension scheme during those years.
Higher and top-rate taxpayers
If you pay 40% income tax, you can claim back the additional 20% spent on your tax return. . That means a £10,000 pension pot effectively only costs you £6,000.
If you’re a 45% taxpayer, you can claim back up to 25% on your tax return, meaning a £10,000 pension payment only costs you £5,500.
You must pay sufficient tax at the higher or top-rate to claim the full 40% or 45% tax relief.
Why not let RWB Chartered Accountants assist with pension tax matters, so you can rest assured that you are adequately covered in your retirement?
The views provided in this article are for general information purposes only. Nothing in this article represents advice of any nature whatsoever. Accordingly, RWB CA Limited does not accept any liability or responsibility for the information contained in this article or any decision or other action that may be taken in reliance upon the information contained within it. RWB CA Limited accepts no responsibility for any errors of fact or opinion and assumes no obligation to provide you with any changes to its assumptions.