PENSION PLANNING

For most taxpayers, the maximum pension contribution is £40,000 each tax year, although this depends on their earnings. This limit covers both contributions by the individual and by their employer.

The unused allowance for a particular tax year may be carried forward for three years and can be added to the relief for the current, but then lapses if unused.  Hence the unused pension allowance for 2017/18 will lapse on 5 April 2021 if unused.

There is a possibility that pension tax relief may be restricted in the next budget. Under the current rules, the net after-tax cost of saving £4,000 in a personal pension for a higher rate taxpayer is £3,000. HMRC then add a further £1,000 to your contribution and there is a further £1,000 relief when your tax liability is calculated, thus the value of your pension pot would be £5,000, for a net cost of £3,000. Remember that pension fund investments can go down as well as up, but a 40% fall would be unlikely.