Use your pension annual allowance by 5th April for tax relief

Don’t miss out on maximising your tax-efficient savings before the new fiscal year begins! With the tax year end just around the corner, it’s crucial to consider all your options – and the pension annual allowance is one you may have overlooked. In this blog post, discover how to make the most of your pension contributions and take advantage of tax relief before April 5th.

What is the pension annual allowance?

The pension annual allowance is the most you can contribute to your pension each year. Anything above the annual pension allowance will be subject to high tax penalties. The allowance is set at £40,000 for the current tax year, which ends on April 5th, 2023. That means you can contribute up to £40,000 before April 5^th and receive tax relief on your savings.

Why is the pension annual allowance Important?

Contributing to your pension is an essential part of saving for retirement. The pension annual allowance is an important tool that allows you to make the most of the tax benefits of saving for your retirement. By contributing to your pension up to the annual allowance, you not only benefit from valuable tax relief, but you also increase your retirement savings.

How does it work?

When you contribute to your pension, you get tax relief on the amount you save. This means that if you are a basic rate taxpayer, you will receive £25 in tax relief for every £100 you contribute. This is  essentially a refund on what you have already paid in income tax on the contributed amount. If you are a higher-rate taxpayer, you could also claim extra in tax relief.

By contributing as much as you can afford (up to £40,000) to your pension before the end of the tax year, you can benefit from this tax relief and reduce your overall tax bill. For example, if you contribute the maximum annual allowance of £40,000, you could receive an extra £10,000 in tax relief.

Other ways to maximise pension savings

If you are an entrepreneur or self-employed, you probably enjoy being in control of your own choices. With a Self-Invested Personal Pension such as iSIPP you can easily choose your own investments, and any returns are tax-free.

We have a range of investment options suitable for different investment styles. Plus, our funds are managed by leading providers such as BlackRock and Schroders – giving you the confidence your money is in good hands.

How to use your annual allowance before 5th April

If you haven’t used your pension annual allowance yet, you still have time before the end of the tax year. You can contribute to your pension through either your employer’s pension plan or a personal pension plan such as iSIPP. If you are a higher-rate taxpayer, you may want to consider making a larger contribution to take advantage of the additional tax relief.

However, it is critical that you do not exceed your annual allowance. If you exceed your annual allowance, you will be charged a tax on the excess amount. Furthermore, if you have already begun to draw from your pension, you should check to see if your annual allowance has been reduced.

In conclusion, the pension annual allowance is a powerful tool that can help you save and invest in a tax-efficient way. By taking advantage of the tax relief available before the end of the tax year, you can give your pension a significant boost. So, if you haven’t maximised your contributions yet, now is the time to act!

You might also like:

How much can I pay into a pension each year?

Pension tax relief for the self-employed and contractors

Pensions and tax

Disclaimer 

The content of this article is for general information purposes only and should not be construed as legal, financial or taxation advice. You should not rely on the information contained in this article as legal, financial or taxation advice. The content of this article is based on information currently available to us, and the current laws in force in the UK. The content does not take account of individual circumstances and may not reflect recent changes in the law since the date it was created. It is essential that detailed financial and tax advice should be sought in both jurisdictions and any legal advice, if required.

This notice cannot disclose all the risks associated with the products we make available to you. When making your own investment decisions it is important you understand that all investments can fall as well as rise in value and it is possible you may get back less than what you have paid in. You should also be satisfied that any investments you choose are suitable for you in the light of your circumstances and financial position. You should seek financial advice if you are not sure of what’s best for your situation.