Pension tax relief: Britons could use ‘carry forward’ option to boost their allowance

Pension: Expert gives advice on preparing for retirement

We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info

Savers must be wary not to fall foul of the pension annual allowance, which restricts the amount Britons can save into a pension in any given year. However, there are also potential benefits which could come from using the allowance wisely.

The current annual allowance enables individuals to contribute up to 100 percent of their earnings to their pensions, to a limit of £40,000.

People who exceed the threshold could be hit with a tax charge.

There is also another limit which caps the amount someone can save in their lifetime, known as the lifetime allowance.

This works similarly to the annual allowance, but has a much higher threshold of £1,073,100.

Pensions are usually assessed for the lifetime allowance when someone draws their pension, turns 75, or on death – whichever comes first.

Anyone who breaches either limit must report this on their tax return.

However, one of the useful elements of the annual allowance is that Britons may be able to roll forward any unused allowances to future years.

Romi Savova, CEO of PensionBee, explained how this can be done.

DON’T MISS
DWP pension benefit could give pensioners weekly boost up to £177 – are you eligible? [ALERT]
Inheritance tax warning: Britons to face ‘burden’ as Rishi Sunak’s ‘coffers are brimming’ [WARNING]
PIP explained: The full list of 19 conditions that may qualify for £608 a month from DWP [INSIGHT]

She said: “Savers have the option to ‘carry forward’ unused allowances from the previous three years, starting with the earliest (2018/19).

“The amount of annual allowance they can carry forward will depend on how much they used in the previous three tax years.

“These allowances must include the total value of the contributions they make across all of their pensions, including any contributions made by their employer to a workplace pension, plus the tax top ups they’ve received from HMRC.”

Ms Savova also discussed some of the other benefits Britons can take advantage of relating to their pension, before the tax year ends on April 5.

She said: “One of the best things about saving into a pension are the tax benefits.

“As we approach the end of the tax year, pension savers have just a few weeks left to make the most of their annual allowance for 2021/22.

“Most basic rate taxpayers will automatically get a 25 percent tax top up on their personal pension contributions: HMRC adds £25 for every £100 a saver pays into their pension.

“Higher and additional rate taxpayers can usually claim further relief through Self-Assessment.”

She explained how even low earners can boost their pension and receive tax relief.

Ms Savova said: “If an individual is a low earner, it’s even more important to put aside some money, and take advantage of the available tax incentives.

“If they earn less than £3,600 annually or don’t earn anything, the maximum amount they can contribute to their pension within the tax threshold is £2,880, bringing the total annual contribution to £3,600 once tax top ups are added.

“If planning to make the most of their unused tax relief, savers shouldn’t wait until the last minute instead taking extra care to ensure their contributions reach their pensions well ahead of the April 5 deadline.”

Source: Read Full Article