I know 5th of April is some way off but you can never start planning too early.
We all know the generous tax advantages attached to pension schemes. However, few clients are aware that you can make up for lost time when making contributions. “Carry forward” allows you to make pension contributions now against income and unused allowances from up to three years ago.
Before you can make contributions against previous years allowances, you have to make full use of the current years allowance of £40,000. You also need to have had a pension plan or been a member of a company scheme in the year in which you are bringing forward those unused reliefs.
Carry forward is really useful if your earnings can vary from year to year, typically the self-employed or those in receipt of variable bonuses.
If you run your own business then there is an additional benefit, as the company is able to make contributions regardless of the amount of earnings you have. This needs to be done correctly and care needs to be taken here, so getting advice is important.
Remember tax relief is paid at your highest rate of tax and therefore the benefit is even greater for higher rate tax payers. No other main stream investments give you a 20%, 40% or even 45% kick start.
With the changes made in 2015 in how you can access your pension more flexibly, pensions are a much more attractive proposition. Many of my clients who have built up valuable ISA portfolio have diverted into a pension to obtain the valuable tax reliefs, turning £10,000 into £16,667 or even £18,182, a gain of 81.82%!
As always, there are certain rules and conditions that need to be met so if you want to know more speak with your financial planner.
Kristina Bailey Dip FA CeMAP
This information is provided strictly for general consideration only. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case. Based upon our understanding of UK tax law at December 2017. The value of investments can fall as well as rise and you may not get back the full value of your investment