PART 1 – Pension contributions – have you fully utilised your annual allowance?
This allowance is up to a maximum of £40,000 per annum for UK individuals under 75. However, this is tapered down by £1 for every £2 for taxpayers whose income is between £150,000 and £210,000 to a minimum of £10,000. It is possible to carry the previous 3 years unused annual allowance forward, where you have been a member of a pension scheme in the relevant tax year. Please note this allowance takes into consideration both contributions made by you and your employer (if relevant).
But remember you can only contribute up to 100% of your earnings each year into a pension scheme, subject to a de-minimus limit of £3,600 (£2,880 net). This means that even someone with no income in a tax year can still continue to make some pension contributions!
Pension contributions can be a useful tool to ensure entitlement to your tax free personal allowance continues. When a taxpayer has adjusted net income over £100,000 the personal allowance (currently £12,500 for 2019/20) is tapered down by £1 for every £2. Adjusted net income is calculated by deducting the amount of pension contributions made in the tax year. So, as well as receiving tax relief on the contributions at your marginal rate, contributions can also mean you are still eligible to receive a full personal allowance too!
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