As we approach the end of the tax year many people are looking to make the most of the Government’s generous tax benefits and allowances for pension contributions. Although there were no big surprises for pensions in the Budget 2017, there are two areas that remain important to highlight before 5 April.
Protecting a pension against the lifetime allowance tax charge
People with large pensions who are worried about exceeding the lifetime allowance should consider protecting their pensions to avoid paying a tax charge. One option is to take out Individual Protection 2014 or 2016:
- Individual Protection 2014 (IP2014) protects the pension at its value on 5 April 2014 as long as it was valued between £1.25 million and £1.5 million. IP2014 is only available until April 2017. Any client looking to protect at this level must take action within the next few weeks.
- Individual Protection 2016 will still be available after this date. This protects an individual’s pension at its value on 5 April 2016, as long as it is above £1 million but below £1.25 million
Last chance to carry forward the £50,000 pension annual allowance from 2013/14
This tax year is also the last chance for those wishing to carry forward the bigger £50,000 pension annual allowance from 2013/14.
Pension carry forward lets individuals make extra pension contributions by using any unused annual allowance from the last three tax years.
- To take advantage of carry forward an individual must first use all of their annual allowance for the current tax year (£10,000-£40,000)
- They can then use their old allowances, starting with the earliest of three years
- Their total pension contributions can’t exceed their annual earnings
2013/14 was the last tax year to give a £50,000 pension annual allowance. Added to the £40,000 allowance for the last two tax years, this means individuals could pay up to £130,000 extra into their pension, subject to relevant earnings, and get tax relief on their contributions.
This can be a complicated area of pension planning so we recommend that people take advice from a professional financial planner before taking any action.
To learn more about how we can help you and your clients with pensions and retirement planning, call us on 0333 014 5429 or email firstname.lastname@example.org. Alternatively visit our online web resource at the Law Society of Scotland.
Tilney is proud to be a Strategic Partner of the Law Society of Scotland.
This article was previously published on Tilney prior to the launch of Evelyn Partners.