With the end of the 2023/24 tax year coming up on 5 April, now is your final chance to take advantage of annual reliefs and allowances.

Annual allowances

There is no limit on how much you can pay into your pension pot, however, there is a limit on how much you can pay tax-free.

All the pensions that you pay directly and any pensions that are run by your employer all count towards this threshold.

Combined, you can put up to £60,000 into a private pension each tax year without paying tax.

Salary sacrifice and pension contributions

If your income is just above the higher or additional rate Income Tax threshold, you may want to make use of a salary sacrifice scheme.

This is offered by some employers where your pension contributions are paid directly from your earnings.

By doing this, you reduce your taxable salary. As a result, you will pay less Income Tax and National Insurance, and even reduce your Income Tax threshold.

Threshold income vs adjusted income

Your income can affect your tax allowances and reliefs, as they are applied on a tapered scale using two measures.

These are your threshold income, which is your income excluding pension contributions, and your adjusted income, which is your income including pension contributions.

Your pension contribution allowance decreases if your threshold income is over £200,000 and your adjusted income is over £260,000.

You can calculate your pension allowance using HM Revenue & Customs (HMRC) guidance.

Accessing your pension

Your tax-free threshold may also be reduced if you access your pension pot. This includes taking cash or a short-term annuity from your pension on a flexible basis.

It is best to check with your pension provider whether the flexibility of your pension will affect your tax obligations.

With this type of pension, you are only able to put in £10,000 for the current tax year.

Lifetime Allowance

In April, the Government will be abolishing the Lifetime Allowance (LTA) on pensions. Under the previous legislation, you paid tax on pensions savings above £1,073,100.

The new legislation introduces two new systems for taxing pensions. The Individuals Lump Sum Allowance (LSA) will be set at £268,275 and the Individual Lump Sum and Death Benefit Allowance (LSDBA) is to be set at the same rate as the LTA.

This is another thing to consider when planning your pension.

Reaching the allowance

Once you have reached the £60,000 allowance, paying more into your pension pot can create a tax liability.

There are other options available to you to help improve the tax efficiency of your income. These include:

• Paying into an ISA
• Making a gift from your salary to a charity
• Asking your employer if they offer a salary sacrifice scheme – although this will only affect future tax years.

Paying into your pension is a great way to plan your future whilst reducing your tax obligations in the present.

It is best to make use of your £60,000 allowance before the end of the tax year if you haven’t already.

For help on your pension contributions and tax planning, speak to a member of our team today.

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While we can’t offer you financial advice on where to invest your savings, there are several tax considerations that can help you make more of what you earn.

Before you approach your golden years, it’s essential to have a clear plan in place to ensure that you can retire with confidence.

There are generally some steps that we recommend to our clients throughout their life that can provide a boost to them in retirement. We have gone over them in a little more detail here so you can formulate an effective retirement plan.

Obviously, pensions form the bedrock of most retirement plans.

There are mainly two types of pensions in the UK: the State Pension and private pensions, which include workplace pensions and personal or stakeholder pensions.

Your State Pension and why it’s insufficient 

The State Pension is provided by the Government and is based on your National Insurance contribution record.

To qualify for the full State Pension, you need to have 35 years of qualifying National Insurance contributions.

You can check your State Pension forecast here.

In April 2024, the State Pension is set to increase by 8.5 per cent, under the ‘triple lock’ policy.

The new flat-rate State Pension will rise to £221.20 weekly, and the basic State Pension for those eligible before April 2016 will go up to £169.50.

Despite this increase, the State Pension alone may not suffice for a comfortable retirement, so you should always consider it as part of a wider retirement plan.

Personal and workplace pensions

Workplace pensions involve contributions from both you and your employer.

If you are classed as a worker, are aged between 22 and State Pension age and earn at least £10,000 per year, then your employer should enrol you in a workplace pension scheme.

Personal pensions, such as self-invested personal pensions (SIPP), can be set up and paid into by yourself or your employer. These can supplement a workplace pension or form your main pension pot if you are self-employed.

You can contribute whatever you like to your pension and, so long as you are within the allowances, you will not pay tax.

The annual allowance is £60,000 per year for all your personal and workplace pension contributions.

For higher earners, the annual allowance is tapered, decreasing by £1 for every £2 of earnings above £260,000. This reduction continues until it reaches the lower limit of £10,000.

There can be a tax charge on individuals that make a level of contributions to pension schemes that exceeds the level of their relevant UK earnings (e.g. employment and self-employment income) in the tax year. Where an individual has no relevant UK earnings, then they are limited to tax relief on gross pension contributions of £3,600.

The money purchase annual allowance stops people from contributing more than £10,000 per year when they have accessed their pensions benefits.

If you exceed the annual allowance, the excess amount will be added to your other taxable income for that tax year and taxed at your applicable Income Tax rate.

From April 2024, the £1 million lifetime allowance will be fully abolished, ensuring that there is no upper limit on the amount you can put away before being taxed – subject to annual contribution falling below the annual allowance.

The tax benefits that your pension offers

When you contribute to a pension, the amount you put in is effectively topped up by tax relief.

For instance, if you are a basic rate taxpayer, for every £80 you contribute to your pension, the Government adds another £20 in tax relief, effectively making your total contribution £100.

It matches the Income Tax you would have paid on this when you initially received it.

The more you earn, the more tax you can save. So, a higher rate taxpayer, who has been taxed 40 per cent on their income, for example, would receive £40 for every £60 they contribute.

Additionally, the growth of your pension investments is largely tax-free. This contrasts with most other forms of investment, where returns might be subject to Capital Gains Tax or Income Tax.

When you start drawing your pension, up to 25 per cent of the total can usually be taken as a tax-free lump sum, offering a significant tax advantage.

The remainder of your pension is subject to Income Tax when withdrawn, but this is often at a lower rate, especially if your income in retirement is lower than when you were working.

All these tax benefits make pension contributions one of the most tax-efficient ways to save for retirement and we highly recommend that everyone has some kind of pension scheme in their later life plans.

Why you should consider investing in a Lifetime ISA

There are a few genuinely tax-efficient ways to boost your savings during your working life and Lifetime Individual Savings Accounts (LISAs) represent one popular way to do so.

LISAs can only be opened by those over the age of 18 and under 40 and you can only deposit up to £4,000 each year until the age of 50.

The real value of a LISA comes from the fact that the Government will add a 25 per cent bonus to your savings, up to a maximum of £1,000 per year.

You can withdraw from your LISA for either your first home, when you are 60 or over, or when you are terminally ill – early withdrawal for other purposes incur penalties.

Ultimately, these help you achieve your first home or retirement goals more effectively.

A quick note on business succession

Passing your business onto someone else is usually a better option than simply letting it die when you decide you no longer want to work.

(An exception to this is if you are a sole trader who does not employ anyone else).

Without a succession plan, a business may face challenges such as being sold under duress for less than its value or becoming directionless and at risk of failure.

As a result, you need to formulate a well-crafted succession plan that ensures the continuity of your business, your legacy and protects the financial interests of your family or other inheritors.

If you are planning to sell your business, different sale options such as cash purchases or instalment sales can have varying tax implications, both for you and the buyer.

Instalment sales can be particularly advantageous in spreading out your tax liabilities, especially if you are in a family business scenario.

We often recommend changing your business strategy from tax efficiency to maximising business value, which can lead to better offers from buyers but may also result in higher taxes in the short term.

Poor or absent succession planning can lead to financial loss, tax liabilities, and the potential collapse of the business, which is something you should avoid, even if just for your employees’ sake.

Inheritance Tax (IHT) planning

IHT can significantly impact the wealth you pass on, so it is important to take it into account when planning your retirement.

The current Nil-Rate Band is £325,000, so anything above this amount is taxed at 40 per cent. Please note that gifts before death can use up the Nil-Rate Band for up to 7 years when these gifts have not been structured to utilise other allowances.

However, there are exceptions to this.

The Residence Nil-Rate Band means that £175,000 of your primary residence is considered to be tax-free and is added onto your pre-existing Nil-Rate Band. So, if your estate contains a house that will pass to direct descendants, you are entitled to pass on £500,000 before IHT comes into play. The Residence Nil-Rate Band will be tapered for estates worth over £2 million.

Similarly, if you pass the entirety of your estate to a spouse, your Nil-Rate Band and Residence Nil-Rate Band are also included in their IHT calculations.

Because your spouse also has £500,000 to pass down tax-free, when you add your own thresholds and allowances to theirs, you create a scenario where you can leave £1 million to your loved ones without IHT taking effect.

If your estate is likely to end up being worth more than the combined allowances available, then we recommend you contact us to discuss strategies to ensure your wealth passes smoothly to the next generation without Inheritance Tax being levied (such as utilising gifting strategies, trusts, or other tax-efficient vehicles).

If you would like to talk about the fate of your business once you retire, please don’t hesitate to reach out to one of our team who can walk you through your choices and options.

Similarly, if you have any questions regarding your retirement and later life finances, we have the knowledge and expertise to answer them.

To speak to an experienced accountant, please get in touch.

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This means ensuring that you are aware of any tax obligations you may have when receiving your pension. 

Paying tax on your pension can be complicated. However, with the abolition of the Lifetime Allowance (LTA) in April this year, things may become simpler. 

What is taxed 

As with income from work, you pay tax if your total annual income exceeds your Personal Allowance of £12,570. 

Everyone will have variations in the way they receive their annual income, but it could include: 

• State Pension 
• Additional State Pension 
• Private Pensions 
• Earnings from employment or self-employment 
• Taxable benefits 
• Money from investments, property, or savings 

You will also be taxed on your private pensions above the value of £1,073,100. This can be increased if you hold lifetime allowance protection. 

Under the previous legislation, you would be charged at a rate of 55 per cent if your private pension was received as a lump sum, or 25 per cent if it was received in smaller increments. 

However, since 6 April 2023, this has changed. Instead of paying under the LTA, you are charged Income Tax on some or all of your private pension, whether it is taken as a lump sum or in smaller payments. 

How is tax paid? 

The way you pay tax depends on what pensions you receive and any other income you are generating. 

When you are only receiving the State Pension, your income will likely be below the Personal Allowance, meaning you will not need to pay any tax. 

If you get both a State Pension and a private pension, your pension provider will take off any tax you owe. This also applies if you have multiple providers, as HM Revenue & Customs (HMRC) will contact one of your providers to remove the tax from your State Pension. 

For those continuing to work, you will Pay As You Earn (PAYE). If you have an employer, they will automatically take any tax due off your earnings and State Pension. 

If you are self-employed, you will need to fill out a Self Assessment tax return. In this, you must declare all your forms of income. This applies to any other forms of income that you receive. 

Although this sounds simple, it can be easy to get tripped up with tax. We can help you fulfill your tax obligations easily, without worrying about any errors. 

Planning your pensions 

With more of an understanding of how taxation works regarding pensions, it is easier to plan for your retirement. 

There are five simple steps you need to consider before you retire: 

1. Check when you can retire, and if you can retire early with a workplace or personal pension 

1. Find out how much pension you could receive 

1. Look at increasing your pension 

1. Check what financial support is available 

1. Decide when to retire 

Whilst this may sound simple in theory, in practice it can still be complex. 

Planning your pension is something that must be taken seriously. With the advice of an expert on hand, you can make sure that you are getting the most out of your pension. 

Get in touch with one of our experts today for help and advice with pensions.

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Recent figures highlighted that unclaimed pensions amount to an astonishing £28,000 per person.

As a business owner, it is imperative to help your employees in securing what belongs to them.

The Pension Tracing Service has indicated that the total amount in unclaimed pensions extends to millions of pounds, a sum that could substantially strengthen your employees’ financial stability during retirement.

Empowering your team with knowledge

Initiate a campaign to enlighten your team regarding unclaimed pensions and the procedures it takes to trace them.

Encourage proactive steps in discovering any unclaimed pensions they might have.

Guidance in pension tracing

Support your team in navigating pension tracing by promoting the utilisation of the Pension Tracing Service, a complimentary free facility aiding individuals in finding their misplaced pension schemes.

You can further this by allocating appropriate resources and raising awareness of this service.

Foster a supportive environment

Foster a nurturing environment where discussions on pension-related topics are encouraged.

Encourage your staff to exchange experiences and advice on tracking down their unclaimed pensions.

Advocate regular updates

Persuade your team to regularly update their details with their pension providers, including alterations to their address, marital status and other personal information.

This habit will aid in easy contact with pension providers, diminishing the probability of unclaimed pensions.

Recent updates on pension policies

HM Revenue & Customs (HMRC) has publicised that starting from the 2024/25 tax year, individuals earning below £12,570 and not receiving tax relief will receive taxable pension contributions directly from HMRC at the end of the financial year.

As of 6 April 2023, the annual allowance to contribute to pensions rose to £60,000, with the eradication of the lifetime allowance.

The upper limit for pension lump sums has been capped at £268,275.

If individuals have protection from the previous lifetime allowance reductions can maintain their protected lump sum, with surpluses being taxed at the marginal rate instead of 55 per cent.

These modifications cover all pension allowances, inclusive of personal pensions such as SIPPS, extending beyond just workplace pensions.

In your role as an employer, aiding your employees in locating their unclaimed pensions not only fosters financial stability but also nurtures trust and accountability in your business.

Start on this vital initiative today and assist your staff in reclaiming the pensions they are duly entitled to.

If you need assistance in tracing unclaimed pensions, get in touch today.

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The Budget focused primarily on economic growth, with an emphasis on motivating people to get back into work, particularly early retirees.

In response to this, the Chancellor declared major changes to pension allowances, hoping to encourage high-earners to remain in the workforce for longer.

Key pension changes from the Spring Budget 2023:

• Pension Annual Allowances set to increase from £40,000 to £60,000
• Lifetime Allowance to be removed completely
• Money Purchase Annual Allowance set to increase from £4,000 to £10,000
• Tapered Annual Allowance to be updated

Pension Lifetime Allowance

Lifetime Allowance (LTA) represents the total amount you can accumulate in all your pension savings throughout your life without incurring a tax charge when accessing them.

If your pension savings exceed the amount, you will be required to pay a tax charge on the surplus value, which is referred to as the “excess”.

The limit of £1,073,100 was set to last until 2026. However, the Chancellor announced the allowance would be scrapped completely.

The current allowance applies to private pensions and not the state pension.

The new change will come into effect from 6 April 2023 with the initial abolition of the LTA charge, before the allowance is scrapped entirely in the following year.

Pension Annual Allowance

The Pension Annual Allowance refers to the maximum amount an individual can contribute to their private pension each tax year without facing additional charges.

Currently, the limit is set at £40,000. The Chancellor announced that this would rise by 50 per cent to £60,000, starting on 6 April 2023.

Money Purchase Annual Allowance

Changes are also being made to the Money Purchase Annual Allowance.

This allowance is relevant for individuals who have begun to withdraw from their defined contribution pension, but who want to continue working and saving.

At present, the allowance stands at £4,000 per year before incurring a tax penalty. However, the Chancellor has more than doubled this amount to £10,000 and is effective from 6 April 2023.

This change could be useful for those who dipped into their pension to help subsidise their incoming during the pandemic or the cost-of-living crisis.

Tapered Annual Allowance

For higher earners, the tapered annual allowance may have affected their pension savings.

This allowance gradually decreases the amount you can contribute to your pension plan each tax year, based on your earnings.

The allowance would not be reduced to below £4,000. However, in the upcoming tax year, this lower limit will be raised to £10,000.

The adjusted income threshold for the Tapered Annual Allowance will also be increased from £240,000 to £260,000 from 6 April 2023.

The Spring Budget introduced noteworthy pension changes aimed at motivating older individuals to remain in or re-enter the workforce.

The changes have the potential to impact a significant portion of the population. However, the exact number of people who will benefit remains uncertain.

Need advice on your pension contributions? Get in touch with our team today.

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It comes after regulations were laid in Parliament this week, paving the way for Government approval.

Under existing laws, all pensions are either Defined Benefit (DB), which is linked to salary or length of service, or Defined Contribution (DC), based on how much is paid in by the employee.

But the new CDC pension scheme will allow both the employer and employee to pay into a collective fund, with pensions paid out from this shared pot.

This could offer businesses predictable costs and protection against economic shock, such as that caused by the coronavirus pandemic.

Royal Mail and the Communication Workers Union are expected to be among the first to switch to a CDC scheme when it gains approval.

The latest research, meanwhile, suggests that one in five (21 per cent) businesses would be interested in exploring CDC schemes for their own companies.

Commenting on the new scheme, Minister for Pensions, Guy Opperman, said: “I am very pleased that these schemes will soon be able to operate in Great Britain.

“We have seen the positive effect of these schemes in other countries – and it is abundantly clear that when they are well-designed and well-run they have the potential to provide a positive outcome for savers, and can be resilient to market shocks.

“I have no doubt that millions of pension savers will benefit from CDCs in the years to come.”

For help and advice with related matters, please get in touch with our team today.

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