Annual Pension Allowance

As the end of the tax year is approaching you may wish to consider if any additional pension contributions can be made. To do this you will need to understand the annual pension allowance.

Contributions made to a personal pension scheme can lead to significant tax savings. For instance, an individual’s basic rate tax band is extended by the gross value of any pension contribution made, plus it reduces an individual’s assessable income limit in determining if their personal allowance needs to be reduced or if any child benefit payments are repayable.

Alternatively, if your employment pension is operated through salary sacrifice, you will pay no tax or NIC on the amount of gross salary given up, to fund your pension payments.

If you are an employer, the pension contributions made for your staff are potentially tax deductible when calculating your taxable profits.

The annual pension allowance for the 2024-25 tax year is £60,000 per individual and this covers all personal and employment related contributions (including contributions made by your employer and amounts given up through salary sacrifice).

The £60,000 annual pension allowance may be tapered down dependent on your income level, this will happen when your threshold income exceeds £200,000 and your adjusted income exceeds £260,000. The annual allowance will reduce by £1 for every £2 of adjusted income you earn over £260,000. Dependent on your current level of pension contributions it could be worth making additional contributions before the end of the tax year to utilise any of your unused pension allowance.

Contributions in excess of £60,000 can be made if you have available unused allowances from the prior three tax year. Also, if you have already used all your annual allowance for the 2024/25 tax year you may be able to utilise unused allowances from the last three tax years.

If you are looking to make personal contributions, it is worth noting that you cannot receive tax relief on the contributions made that exceed your relevant earnings (i.e. salary or sole trade/partnership profits).

If you wish to know more on annual pension allowance, please feel free to get in touch with Danny Hockin on 023 8202 7481, or email Danny Hockin.